As filed with the Securities and Exchange Commission on March 23, 2015.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
RITTER PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
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Delaware
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2834
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20-1295171
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(State or other jurisdiction
of incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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1801 Century Park East #1820
Los Angeles, CA 90067
(310) 203-1000
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Michael D. Step
Chief Executive Officer
Ritter Pharmaceuticals, Inc.
1801 Century Park East #1820
Los Angeles, CA 90067
(310) 203-1000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Yvan-Claude Pierre, Esq.
Michael Sanders, Esq.
Daniel I. Goldberg, Esq.
Reed Smith LLP
599 Lexington Avenue
New York, New York 10022
(212) 521-5400
(212) 521-5450 — Facsimile
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Anthony J. Marsico, Esq.
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue
New York, NY 10166
(212) 801-9200
(212) 801-6400 — Facsimile
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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Accelerated filer
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☐
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Non-accelerated filer
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☐
(Do not check if a smaller reporting company)
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Smaller reporting company
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☒
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The Registrant is an “emerging growth company,” as defined in Section 2(a) of the Securities Act. This registration statement complies with the requirements that apply to an issuer that is an emerging growth company.
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to be registered
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Proposed Maximum
Aggregate Offering
Price
(1)
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Amount of
Registration Fee
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Common stock, par value $0.001 per share
(2)
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$
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17,250,000
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$
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2,004.45
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Representative’s Warrants to Purchase Common Stock
(3)
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—
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—
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Common Stock Underlying Representative’s Warrants
(2)(4)
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$
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750,000
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$
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87.15
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Total Registration Fee
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$
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18,000,000
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$
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2,091.60
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(1)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended. Includes offering price of shares which the underwriters have the option to purchase to cover over-allotments, if any.
(2)
Pursuant to Rule 416 under the Securities Act, the shares of common stock registered hereby also include an indeterminate number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions.
(3)
No registration fee pursuant to Rule 457(g) under the Securities Act.
(4)
Estimated solely for the purposes of calculating the registration fee pursuant to Rule 457(g) under the Securities Act of 1933, as amended. The proposed maximum aggregate offering price of the representative’s warrants is $750,000, which is equal to 125% of $600,000 (4% of $15,000,000).
The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
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PRELIMINARY PROSPECTUS
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SUBJECT TO COMPLETION
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DATED MARCH 23, 2015
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Shares
Common Stock
This is a firm commitment initial public offering of shares of common stock of Ritter Pharmaceuticals, Inc. No public market exists for the shares. We anticipate the initial offering price to be between $ and $ per share.
We expect to implement a 1-for- reverse stock split of our outstanding common stock just before the effective time of this prospectus. We have applied to list our shares of common stock for trading on The NASDAQ Capital Market under the symbol “RTTR.” No assurance can be given that our application will be approved.
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and have elected to comply with certain reduced public company disclosure standards.
Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page
12
of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
(1)
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$
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$
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Offering proceeds to us, before expenses
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$
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$
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(1)
The underwriters will receive compensation in addition to the discounts and commissions. See “Underwriting” for a full description of compensation payable to the underwriters.
We have granted a 45-day option to the underwriters to purchase up to an additional shares of common stock solely to cover over-allotments, if any.
The underwriters expect to deliver our shares to purchasers in the offering on or about , 2015.
Aegis Capital Corp
, 2015
TABLE OF CONTENTS
You should rely only on the information contained in this prospectus. Neither we nor any of the underwriters has authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any free writing prospectus prepared by or on behalf of us or to which we may have referred you in connection with this offering. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. Neither we nor any of the underwriters is making an offer to sell or seeking offers to buy these securities in any jurisdiction where, or to any person to whom, the offer or sale is not permitted. The information in this prospectus is accurate only as of the date on the front cover of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock, and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates.
This prospectus includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. The industry publications and industry data contained in this prospectus have been obtained from sources believed to be reliable.
For investors outside the United States: We have not and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
PROSPECTUS SUMMARY
This summary provides an overview of selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our common stock. You should carefully read this prospectus and the registration statement of which this prospectus is a part in their entirety before investing in our common stock, including the information discussed under “Risk Factors” and our financial statements and notes thereto that appear elsewhere in this prospectus. Unless otherwise indicated herein, the terms “we,” “our,” “us,” or “the Company” refer to Ritter Pharmaceuticals, Inc.
Our Business
Ritter Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases. We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health. “Prebiotics” is a general term used to refer to chemicals that induce the growth and/or activity of commensal microorganisms that contribute to the well being of their host.
Our first novel microbiome modulator, RP-G28, an orally administered, high purity galacto-oligosaccharide (a carbohydrate found naturally, at least in small amounts, in plants, consisting of three to ten simple sugars linked together), is currently under development for the reduction of symptoms associated with lactose intolerance. RP-G28 is designed to stimulate the growth of lactose-metabolizing bacteria in the colon, thereby effectively adapting the gut microbiome to assist in digesting the lactose that reaches the large intestine. RP-G28 has the potential to become the first drug approved by the U.S. Food and Drug Administration, or FDA, for the reduction of symptoms associated with lactose intolerance. RP-G28 has been studied in a Phase 2a clinical trial and is a first-in-class compound.
Our Market Opportunity
Lactose intolerance is a common condition attributed to insufficient levels of the enzyme lactase, which is needed to properly digest lactose, a complex sugar found in milk and milk-containing foods. People with lactose intolerance who ingest lactose-containing foods may experience painful and embarrassing digestive symptoms.
Lactose intolerance is a widespread condition affecting over one billion people worldwide and over 40 million people in the United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating moderate to severe symptoms
[NIH Consensus Statement, LIH, Vol. 27, #2 (February 2010); Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” p. 4 and 7 (June 2012)]
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In the United States alone, we believe lactose intolerance is a large and underserved market. Current annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
[Zpryme Research & Consulting, “The Digestive Health Prescription Drug Market,” (May 2009)].
However, these options are limited and there is no long-term treatment available.
The most common therapeutic approach is dairy avoidance, which physicians recommend to the majority of their patients. However, dairy avoidance may lead to inadequate calcium and vitamin D intake, which can predispose individuals to decreased bone accrual, osteoporosis, and other adverse health outcomes. The 2010 National Institutes of Health conference on lactose intolerance highlighted the long-term consequences of dairy avoidance demonstrating both the importance of treating the condition and the need to find improved solutions for patients.
Our Leading Product Candidate — RP-G28
On June 12, 2013, we announced positive data from our Phase 2a clinical study of RP-G28. The purpose of the study was to assess the effectiveness, safety and tolerability of RP-G28 compared to a placebo when administered to subjects with symptoms associated with lactose intolerance. An additional goal was to establish proof-of-concept that treatment with RP-G28 facilitates improved lactose metabolism via the adaptation of intestinal bacteria metabolism (
i.e.
, colonic adaptation). The results were presented at
the Digestive Disease Week and the New York Academy of Sciences Conference on Probiotics, Prebiotics and the Host Microbiome: The Science of Translation, co-sponsored by the Sackler Institute for Nutrition Science and the International Scientific Association for Probiotics and Prebiotics.
The double-blinded, randomized, multi-center, placebo-controlled Phase 2a study evaluated RP-G28 in 62 patients with lactose intolerance over a treatment period of 35 consecutive days. Post-treatment, subjects reintroduced dairy into their diets and were followed for an additional 30 days to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. In order to confirm lactose intolerance and study participation, subjects underwent a 25-gram lactose challenge in the clinic. Lactose intolerance symptoms and hydrogen production via hydrogen breath test were assessed for six hours post-lactose dose. Eligible subjects were required to demonstrate a minimum symptom score and a “positive” hydrogen breath test in order to be eligible for randomization. A “positive” breath test was defined as a hydrogen gas elevation of 20 parts per million (ppm) at two time-points within the six hours following a lactose-loading dose. The primary endpoints included tracking patients’ gastrointestinal symptoms via a patient-reported symptom assessment instrument (a Likert Scale, measuring individual symptoms of flatulence, bloating, cramping, abdominal pain and diarrhea, on a scale of 0 (none) to 10 (worst)) at baseline, day 36 and day 66; as well as the measurement of hydrogen gas levels in their breath following a 25-gram lactose challenge. Changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms (T-RFLP) and microbiome analysis of 16S rRNA genes by pyrosequencing.
RP-G28 was well tolerated, with no significant adverse events reported. The Phase 2a study demonstrated clinically meaningful benefits to patients on treatment, whereas treated subjects reported increased tolerance to lactose and dairy foods: reduced lactose intolerance symptoms (gas, bloating, cramping and abdominal pain) were reported in subjects on RP-G28, a durable reduction in abdominal pain (p=0.019) was reported, and treated patients were 6 times more likely to describe themselves as lactose tolerant (p=0.039).
In the Phase 2a study, changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms (TRFLP), a molecular biology technique for profiling microbial communities based on the position of a restriction site closest to a labeled end of an amplified gene, and microme analysis of 16S rRNA genex by pyrosequencing, a method of DNA sequencing (determining the order of nucleotides in DNA). In addition, Principal Component Analysis (PCA), a multivariate method that helps transform a number of possibly correlated variables into a smaller number of uncorrelated variables called principal components, thereby reducing the dimensions of a complex dataset, showed statistically significant shifts in the microbiome of subjects fed RP-G28, compared to placebo, at 66 days. Specifically, RP-G28 significantly altered the microbiomes of 82% of the study participants who received the treatment.
As shown in Figure 1 below, distinct clusters formed post-treatment (Day 66), showing a clear shift in certain species represented before and after treatment.
Figure 1
Principal Coordinates Analysis (PCoA), a multivariate method that helps visualize similarities and dissimilarities in large datasets, was also utilized to analyze the microbiome data. For analysis of 16S amplicon sequencing data, we created Unweighted Unifrac similarity matrices (that is we conducted PCoA) and applied ANOSIM (Analysis of Similarities) and PERMANOVA (Permutational Analysis of Variance) statistical analyses. Our analysis showed a significant association between Day (day 0 or baseline, and day 36 and 66 as categories) and microbiome composition (ANOSIM R = 0.218, P = 0.0001, PERMANOVA Pseudo-F = 3.4318, P = 0.0001). These data indicate that RP-G28 and subsequent introduction of lactose into the diet had impacted the fecal microbiome of participants. Further, lactose metabolizing bacteria were shown to increase in the treatment group.
The results of our Phase 2a study were published in Nutrition Journal in a manuscript entitled,
“Improving lactose digestion and symptoms of lactose intolerance with a novel galacto-oligosaccharide (RP-G28): a randomized, double-blind clinical trial.”
We believe the efficacy and safety results from the Phase 2a study support further clinical investigation of RP-G28 in patients with lactose intolerance. We held a Type C meeting with the FDA’s Division of Gastroenterology and Inborn Errors Products on February 20, 2013. The purpose of the meeting was to
obtain the FDA’s feedback on the planned Phase 2 program and Phase 3 programs, inform the FDA of our ongoing development plans, gain feedback on relevant clinical trial design and end points related to patient meaningful benefits, and to inform the FDA of the status of our product characterization. We believe that this meeting was a significant step forward in streamlining the pathway to initial U.S. approval of RP-G28 to reduce symptoms and frequency of symptomatic episodes associated with lactose intolerance. The meeting and official meeting minutes provided valuable guidance on the development path of RP-G28:
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The FDA agreed with our decision to develop and validate a new analytical assay for RP-G28 drug substance and drug product. This adjustment will provide additional information about GOS components and non-GOS impurities, which the FDA agrees should be in place before we prepare batches of the drug substance for use in any pivotal Phase 3 clinical trials.
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Based on our plan to conduct ICH-compliant GLP embryo-fetal development toxicology studies (in two species) and the ICH standard battery of genotoxicity tests using RP-G28, the FDA agreed that no additional nonclinical studies are needed at this time to support Phase 3 studies.
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The FDA advised us on potential end points and clinical trial design.
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We addressed the FDA’s recommendation in its June 28, 2010 advice letter that we include a pharmacokinetic study in the Phase 2b study to assess the extent of systemic exposure of RP-G28. We explained to the FDA that we did not collect serum samples for pharmacokinetic measurement in the Phase 2a study because at the time assays for measuring RP-G28 were not available and significant systemic absorption was not anticipated. We then informed the FDA of our plan to evaluate alternatives, as a surrogate for RP-G28 systemic exposure as part of our Phase 2b program. The FDA agreed with this approach.
Having received FDA guidance on RP-G28’s clinical and regulatory pathway, a development plan is now in place and preparation for a Phase 2b clinical trial is underway.
The Phase 2b clinical trial will include a multi-center double-blinded, placebo controlled clinical trial of approximately 300 subjects to determine the maximum tolerated dose and optimal dose-escalation schedule for RP-G28. We intend to assess patients with moderate to severe abdominal pain as measured by a pain Likert scale after a lactose challenge. Additional lactose intolerance symptoms (gas, bloating, diarrhea, cramps) will also be measured. Entry criteria will also include a hydrogen breath test to validate lactase deficiency. The study design will include a screening phase; a 30-day course treatment phase and a 30-day post-treatment evaluation phase. The study will be designed to gradually escalate the dose beyond the 15 gm/day dose level evaluated in the Phase 2a study. Subjects will abstain from milk or dairy products and will be randomized evenly (1:1:1:1) to receive one of three doses of RP-G28 or placebo for 30 days.
Subjects will be followed post-treatment for an additional 30 days while milk and dairy products are re-introduced into their diets. The primary endpoint will be durable reduction in abdominal pain, with secondary endpoints measuring changes in individual lactose intolerance symptoms (gas, bloating, diarrhea, cramps). This study will also include collection of blood samples to assess systemic exposure to RP-G28 using measurement of serum concentrations of a trisaccharide. This will be monitored as a surrogate to assess the systemic bioavailability of orally administered RP-G28.
In order to gather long-term data on subjects exposed to RP-G28, subjects completing the protocol will be offered enrollment in an observational extension study, G28-004. As RP-G28 is expected to provide extended relief from lactose intolerance symptoms beyond the initial 30-day treatment phase, this extension study will assess the long-term treatment effect. Results from this study will guide the need to evaluate an additional 30-day course of treatment in Phase 3 in subjects who experience the return of lactose intolerance symptoms after an initial course of RP-G28.
Our Competitive Strengths
Market Opportunity
RP-G28 has the potential to become the first approved drug in the United States and Europe for the reduction of symptoms associated with lactose intolerance.
Renowned Scientific Team and Management Team
Our leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Substantial Patent Portfolio and Product Exclusivity
We have an issued patent in the United Kingdom directed to compositions of non-digestible carbohydrates, and issued patents directed to methods of using these compositions for the treatment of lactose intolerance and symptoms. Additional worldwide patent applications are pending. The patent applications include claims covering compositions, methods, formulations and packaging.
In addition, we have secured an exclusive supply agreement for Good Manufacturing Practices, or GMP, produced product from Ricerche Sperimentali Montale SpA, or RSM, a prominent oligosaccharide manufacturer in Europe and affiliate of the Inalco Group. The agreement grants us an exclusive option to assignment of certain of Inalco’s patent applications for the process to produce ultra high purity galacto-oligosaccharide active pharmaceutical ingredients, including RP-G28.
Our Growth Strategy
In order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome dysfunctions, our near-term and long-term strategies include the following:
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complete the Phase 2b study and pivotal Phase 3 studies of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients;
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seek regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance if the clinical trials are successful, initially in the United States and subsequently in the rest of the world;
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develop and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
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explore the use of RP-G28 for additional potential therapeutic indications and orphan indications;
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establish the Company as a leader in developing therapeutics that modulate the human gut microbiome;
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continue to develop a robust and defensible patent portfolio, including patents we own and those we plan to in-license in the future; and
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continue to optimize our product development and manufacturing capabilities both internally and through outside manufacturers.
Risks Relating to Our Business
We are an early stage pharmaceutical company, and our business and ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should consider the risks discussed in the “Risk Factors” section of this prospectus, including, but not limited to, the following:
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We have incurred net losses in each year since our inception. We expect to incur net losses and negative operating cash flow for the foreseeable future, and may never achieve or maintain profitability.
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Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
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We will require substantial additional funding beyond this contemplated offering to complete the development and commercialization of RP-G28 and to fund our operations generally and such funding may not be available on acceptable terms or at all.
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We are substantially dependent on the success of our only product candidate, RP-G28, which is under clinical development. We cannot be certain that RP-G28 will receive regulatory approval or be successfully commercialized even if we receive regulatory approval.
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Future clinical trials of RP-G28, or other product candidates, may not be successful. If we are unable to obtain required marketing approvals for, commercialize, obtain and maintain patent protection for or gain sufficient market acceptance by physicians, patients and healthcare payers of RP-G28, or other product candidates, or experience significant delays in doing so, our business will be materially harmed and our ability to generate revenue will be materially impaired.
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RP-G28 and any other product candidates we may develop in the future will be subject to ongoing regulatory requirements and any violations of these requirements could negatively affect our business and results of operation.
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Any delay or disruption in the manufacture and supply of RP-G28 (including delays related to required regulatory approvals) may negatively impact our operations.
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We will be substantially dependent on third-party manufacturers to manufacture our products and key ingredients in sufficient quantities and on a timely basis, while complying with extensive FDA and European Medicines Agency, or EMA, requirements.
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We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
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If we are unable to maintain valid and enforceable intellectual property rights or if our intellectual property rights are inadequate for RP-G28 and our product candidates, our competitive position could be harmed.
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We could face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. See “Risk Factors — Risks Relating to Our Common Stock and this Offering — We are an ‘emerging growth company’ and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.” These provisions include:
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being permitted to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
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reduced disclosure obligations regarding executive compensation arrangements;
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not being required to hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and
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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior
June 30
th
, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
We refer to the Jumpstart Our Business Startups Act of 2012 in this prospectus as the “JOBS Act,” and references in this prospectus to “emerging growth company” have the meaning associated with that term as used in the JOBS Act.
Notwithstanding the above, we are also currently a “smaller reporting company” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In the event that we are still considered a smaller reporting company at such time as we cease to be an emerging growth company, the disclosure we will be required to provide in our filings with the Securities and Exchange Commission, or SEC, will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requiring that independent registered public accounting firms provide an attestation report on the effectiveness of their internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in their annual reports.
Corporate Information
We were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. On September 16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc. Our principal executive offices are located at 1801 Century Park East, #1820, Los Angeles, CA 90067, and our telephone number is (310) 203-1000. Our website address is
www.ritterpharmaceuticals.com
. The information contained on, or that can be accessed through, our website is not part of this prospectus.
We previously marketed a product under the Lactagen trademark. This prospectus may contain references to our trademark and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the
®
or
TM
symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other company.
THE OFFERING
Common stock offered by us
shares of our common stock (or shares if the underwriters exercise their over-allotment option in full).
We have granted the underwriters an option for a period of up to 45 days to purchase up to additional shares of common stock at the initial public offering price.
Common stock to be outstanding immediately after this offering
shares (or shares if the underwriters exercise their over-allotment option in full).
We estimate that the net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their over-allotment option in full, at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use substantially all of the net proceeds from this offering to fund (i) the continued clinical development of RP-G28 for the reduction of symptoms associated with lactose intolerance, including our anticipated Phase 2b trial and non-clinical development, (ii) expenses associated with the manufacture and product development of RP-G28, and (iii) the exploration of potential therapeutic indications and orphan indications. Potential orphan indications include hepatic encephalopathy, D. Difficile associated diarrhea (antibiotic resistant patients), primary hyperoxaluria and hyperoxaluria associated with bariatric surgery. Potential additional general indications include Chrohn's Disease and ulcerative colitis, irritable bowel syndrome, and conditions associated with disruption to the bowel. Any remaining amounts will be used for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property. See “Use of Proceeds” for a more complete description of the intended use of proceeds from this offering.
You should read the “Risk Factors” section of this prospectus beginning on page
12
for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.
Proposed NASDAQ Capital Market symbol
We have applied to list our common stock on The NASDAQ Capital Market under the symbol “RTTR.”
The number of shares of common stock to be outstanding after this initial public offering is based on an aggregate of [•] shares outstanding as of [•], 2015, and excludes:
•
2,991,016 shares of common stock issuable upon exercise of outstanding warrants;
•
12,789,327 shares of common stock issuable upon exercise of outstanding options as of December 31, 2014, at a weighted average exercise price of $1.00 per share, of which 1,159,997 shares are vested as of such date;
•
[•] shares of common stock issuable upon exercise of options that are contingently issuable upon our raising a minimum of $15 million in one or more private or public offerings of our securities on or before October 1, 2015;
•
[•] shares of common stock reserved for future issuance under the new equity incentive plan, or
the 2015 Plan, we plan to adopt immediately prior to this offering (including 14,630,034 shares available for issuance under our 2008 Stock Plan, or the 2008 Stock Plan, and 500,000 shares available for issuance under our 2009 Stock Plan, or the 2009 Stock Plan, which shares will be added to our 2015 Plan);
•
any shares of common stock issuable upon exercise of the underwriters’ over-allotment option; and
•
any shares of common stock that will underlie the representative’s warrants.
Except as otherwise indicated, all information in this prospectus:
•
reflects the conversion of all 23,757,162 outstanding shares of preferred stock consisting of (a) 7,200,000 shares of Series A-1 preferred stock, (b) 1,687,500 shares of Series A-2 preferred stock, (c) 4,220,464 shares of Series A-3 preferred stock, (d) 7,658,182 shares of Series B preferred stock (including 1,469,994 shares of Series B preferred stock to be issued to Kolu Pohaku Management, LLC, or KPM, immediately prior to this initial public offering, upon the automatic exercise of an option held by KPM, or the KPM Option, in connection with this offering); and (e) 2,991,016 shares of Series C preferred stock;
•
reflects the 1-for- reverse stock split of our common stock to be effected prior to the completion of this offering;
•
gives effect to our restated certificate of incorporation and our restated bylaws to be adopted in connection with the completion of this offering;
•
assumes no exercise by the underwriters of their option to purchase additional shares of our common stock to cover over-allotments; and
•
assumes no exercise of the warrants to be issued to the representative of the underwriters in connection with this offering as described in the “Underwriting — Representative’s Warrants” section of this prospectus.
SUMMARY FINANCIAL DATA
The following table summarizes our selected financial data for the periods and as of the dates indicated. Our selected statements of operations data for the years ended December 31, 2014 and 2013, respectively, and our selected balance sheet data as of December 31, 2014 and 2013, have been derived from our audited financial statements included elsewhere in this prospectus. Our financial statements are prepared and presented in accordance with generally accepted accounting principles in the United States. Our historical results are not necessarily indicative of the results to be expected for any future periods. Our selected financial data should be read together with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our financial statements and their related notes, which are included elsewhere in this prospectus.
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
$
|
113,931
|
|
|
|
|
$
|
461,551
|
|
|
|
Patent costs
|
|
|
|
|
197,731
|
|
|
|
|
|
292,358
|
|
|
|
General and administrative
|
|
|
|
|
1,969,960
|
|
|
|
|
|
1,356,888
|
|
|
|
Total operating expenses
|
|
|
|
|
2,281,622
|
|
|
|
|
|
2,110,797
|
|
|
|
Loss from operations
|
|
|
|
|
(2,281,622
)
|
|
|
|
|
|
(2,110,797
)
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
(525
)
|
|
|
|
|
|
(1,677
)
|
|
|
|
Interest expense
|
|
|
|
|
213,516
|
|
|
|
|
|
6,076
|
|
|
|
Other income
|
|
|
|
|
(21,148
)
|
|
|
|
|
|
(19,365
)
|
|
|
|
Total other expense (income)
|
|
|
|
|
191,843
|
|
|
|
|
|
(14,966
)
|
|
|
|
Net loss
|
|
|
|
$
|
(2,473,465
)
|
|
|
|
|
$
|
(2,095,831
)
|
|
|
|
Cumulative preferred stock dividends
|
|
|
|
|
589,462
|
|
|
|
|
|
547,303
|
|
|
|
Accretion of discount on Series C preferred stock
|
|
|
|
|
8,580
|
|
|
|
|
|
—
|
|
|
|
Net loss applicable to common stockholders
|
|
|
|
$
|
(3,071,507
)
|
|
|
|
|
$
|
(2,643,134
)
|
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
$
|
(0.95
)
|
|
|
|
|
$
|
(0.82
)
|
|
|
|
Weighted average common shares outstanding – basic and diluted
|
|
|
|
|
3,235,445
|
|
|
|
|
|
3,227,500
|
|
|
|
Pro forma information
(1)
|
|
|
|
|
Pro forma net loss attributable to common stockholders
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Pro forma net loss per share, basic and diluted (unaudited)
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Pro forma weighted average shares outstanding, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Pro forma net loss and pro forma net loss per share, basic and diluted, have been calculated after giving effect to the conversion of our preferred stock outstanding on the dates of issuance into an aggregate of 23,757,162 shares of common stock as contemplated to occur upon the completion of this offering.
The following summary unaudited balance sheet data as of December 31, 2014 is presented:
•
on an actual basis;
•
on a pro forma basis after giving effect to (i) the issuance of 1,469,994 shares of our Series B preferred stock to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering, and (ii) the conversion of all of our preferred stock outstanding immediately prior to this offering (including the preferred stock issued pursuant to subparagraphs (i), into 23,757,162 shares of common stock, and
•
on a pro forma as adjusted basis to give further effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, the midpoint of the range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The summary unaudited pro forma as adjusted balance sheet is for informational purposes only and does not purport to indicate balance sheet information as of any future date.
|
|
|
|
As of December 31, 2014
|
|
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Pro Forma
As Adjusted
(1)
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
2,747,248
|
|
|
|
|
$
|
2,747,248
|
|
|
|
|
|
|
Working Capital
|
|
|
|
|
1,549,613
|
|
|
|
|
|
1,549,613
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
2,963,320
|
|
|
|
|
|
2,963,320
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
|
|
1,254,750
|
|
|
|
|
|
1,254,750
|
|
|
|
|
|
|
Notes payable
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Preferred stock subject to redemption
|
|
|
|
|
16,203,612
|
|
|
|
|
|
—
|
|
|
|
|
|
|
Common stock and preferred stock
|
|
|
|
|
12,216
|
|
|
|
|
|
27,085
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
3,397,061
|
|
|
|
|
|
19,585,804
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
(17,904,319
)
|
|
|
|
|
|
(17,904,319
)
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
|
|
(14,495,042
)
|
|
|
|
|
|
1,708,570
|
|
|
|
|
|
(1)
Each $1.00 increase (decrease) in the public offering price per share would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ equity by approximately $ , assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same and that the underwriters do not exercise their over-allotment option. Depending on market conditions and other considerations at the time we price this offering, we may sell a greater or lesser number of shares than the number set forth on the cover page of this prospectus. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of cash and cash equivalents, total assets and total stockholders’ equity by approximately $ , assuming the public offering price per share remains the same. An increase of 1,000,000 in the number of shares we are offering, together with a $1.00 increase in the public offering price per share, would increase each of cash and cash equivalents, total assets and total stockholders’ equity by approximately $ . A decrease of 1,000,000 in the number of shares we are offering, together with a $1.00 decrease in the public offering price per share, would decrease each of cash and cash equivalents, total assets and total stockholders’ equity by approximately $ .
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, including our financial statements and related notes, before deciding whether to invest in shares of our common stock. The occurrence of any of the adverse developments described in the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Relating to Our Financial Position and Need for Additional Capital
We have incurred net losses in each year since our inception. Currently, we have no products approved for commercial sale. As a result, our ability to reduce our losses and reach profitability is unknown, and we may never achieve or sustain profitability.
We have incurred net losses in each year since our inception. The accompanying financial statements have been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. We had net losses of approximately $2.5 million and $2.1 million for the years ended December 31, 2014 and 2013, respectively, and had net cash used in operating activities of approximately $1.2 million and $2 million for the years ended December 31, 2014 and 2013, respectively.
To date, we have devoted most of our financial resources to our corporate overhead and research and development, including our drug discovery research, preclinical development activities and clinical trials. We currently have no products that are approved for commercial sale. We expect to continue to incur net losses and negative operating cash flow for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, RP-G28, and other product candidates, prepare for and begin the commercialization of any approved products, and add infrastructure and personnel to support our product development efforts and operations as a public company. We anticipate that any such losses could be significant for the next several years as we begin our Phase 2b and Phase 3 clinical trials of RP-G28 for the reduction of symptoms associated with lactose intolerance and related activities required for regulatory approval of RP-G28. If RP-G28 or any of our other product candidates fails in clinical trials or does not gain regulatory approval, or if our product candidates do not achieve market acceptance, we may never become profitable. These net losses and negative cash flows have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. In addition, our expenses could increase if we are required by the FDA or the EMA, to perform studies or trials in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of our product candidates. The amount of future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.
Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
As described in our accompanying financial statements, our auditors have issued a going concern opinion on our December 31, 2014 and December 31, 2013 financial statements, expressing substantial doubt that we can continue as an ongoing business for the next twelve months after issuance of their report based on our having suffered recurring losses from operations and having a net capital deficiency, as discussed in our accompanying financial statements. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.
We will require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not so available, may require us to delay, limit, reduce or cease our operations.
We are currently advancing RP-G28 through clinical development. Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is expensive. As of December 31, 2014, we have a total of $2.7 million in cash and cash equivalents. In addition to our currently available funds, we will need to secure additional financing following this offering in order to complete clinical development and commercialize RP-G28 and to fund our operations generally. For instance, to complete the work necessary to file a NDA, and a Marketing Authorization Application, or MAA, for RP-G28 as a treatment for patients with lactose intolerance, which is currently anticipated to occur in 2019, we estimate that our RP-G28 clinical trials, and our planned clinical and nonclinical studies, as well as other work needed to submit RP-G28 for regulatory approval in the United States, Europe and other countries, will cost approximately $85 million, including the internal resources needed to manage the program. If the FDA or EMA requires that we perform additional nonclinical studies or clinical trials, our expenses would further increase beyond what we currently expect and the anticipated timing of any potential NDA or MAA would likely be delayed.
We intend to use substantially all of the net proceeds from this offering to fund (i) the continued clinical development of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients, including our anticipated Phase 2b trial and non-clinical development, (ii) expenses associated with the manufacture and product development of RP-G28, and (iii) the exploration of potential therapeutic indications and orphan indications. Any remaining amounts will be used for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property. As such, the expected net proceeds from this offering will not be sufficient to complete the clinical development of RP-G28, or any product candidates we may develop in the future. Accordingly, we will continue to require substantial additional capital beyond the expected proceeds of this offering to continue our clinical development and commercialization activities. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize RP-G28, and any other product candidates we may develop in the future.
The amount and timing of our future funding requirements will depend on many factors, including but not limited to:
•
the progress, costs, results of and timing of our Phase 2b and Phase 3 RP-G28 trials for the reduction of symptoms associated with lactose intolerance in patients;
•
the willingness of the EMA or other regulatory agencies outside the United States to accept our Phase 2b and Phase 3 RP-G28 trials, as well as our other completed and planned clinical and nonclinical studies and other work, as the basis for review and approval of RP-G28 in the European Union for the reduction of symptoms associated with lactose intolerance in patients;
•
the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;
•
the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development;
•
the ability of our product candidates to progress through clinical development successfully;
•
our need to expand our research and development activities;
•
the costs associated with securing and establishing commercialization and manufacturing capabilities;
•
market acceptance of our product candidates;
•
the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
•
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
•
our need and ability to hire additional management and scientific and medical personnel;
•
the effect of competing technological and market developments;
•
our need to implement additional internal systems and infrastructure, including financial and reporting systems; and
•
the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future.
Some of these factors are outside of our control. If we successfully complete this offering, based upon our currently expected level of operating expenditures, we believe that we will be able to fund our operations through at least the end of 2016. This period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. We do not expect our existing capital resources along with the intended net proceeds from this offering, to be sufficient to enable us to complete the commercialization of RP-G28, if approved, or to initiate any clinical trials or additional development work for other product candidates, other than as described above. See also “Use of Proceeds.” Accordingly, we expect that we will need to raise additional funds in the future.
We may seek additional funding through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional funding may not be available to us on acceptable terms or at all.
To the extent that the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. If the Company is not able to raise additional capital when required or on acceptable terms, the Company may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.
If we are unable to obtain funding on a timely basis, we may be required to significantly curtail one or more of our research or development programs. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to some of our technologies or product candidates or otherwise agree to terms unfavorable to us.
Our financial condition and operating results have varied significantly since our formation and are expected to continue to fluctuate significantly from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control.
Our operations since 2010 have been limited to developing our technology and undertaking preclinical studies and clinical trials of our lead product candidate, RP-G28. We have not yet obtained regulatory approvals for RP-G28, or any other product candidate. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had approved products on the market. Our financial condition and operating results have varied significantly since our formation and are expected to continue to significantly fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include:
•
any delays in regulatory review and approval of our product candidates in clinical development, including our ability to receive approval from the FDA and the EMA for RP-G28 for the reduction of symptoms associated with lactose intolerance in patients based on our Phase 2b and Phase 3 RP-G28 trials, and our other completed and planned clinical and nonclinical studies and other work, as the basis for review and approval of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients;
•
delays in the commencement, enrollment and timing of clinical trials;
•
difficulties in identifying and treating patients suffering from our target indications;
•
the success of our clinical trials through all phases of clinical development, including our Phase 2b and Phase 3 trials of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients;
•
potential side effects of our product candidates that could delay or prevent approval or cause an approved drug to be taken off the market;
•
our ability to obtain additional funding to develop our product candidates;
•
our ability to identify and develop additional product candidates;
•
market acceptance of our product candidates;
•
our ability to establish an effective sales and marketing infrastructure directly or through collaborations with third parties;
•
competition from existing products or new products that may emerge;
•
the ability of patients or healthcare providers to obtain coverage or sufficient reimbursement for our products;
•
our ability to adhere to clinical study requirements directly or with third parties such as contract research organizations, or CROs;
•
our dependency on third-party manufacturers to manufacture our products and key ingredients;
•
our ability to establish or maintain collaborations, licensing or other arrangements;
•
the costs to us, and our ability and our third-party collaborators’ ability to obtain, maintain and protect our intellectual property rights;
•
costs related to and outcomes of potential intellectual property litigation;
•
our ability to adequately support future growth;
•
our ability to attract and retain key personnel to manage our business effectively; and
•
potential product liability claims.
Accordingly, the results of any quarterly or annual periods should not be relied upon as indications of future operating performance.
Risks Relating to Regulatory Review and Approval of Our Product Candidates
We are substantially dependent on the success of our current product candidate, RP-G28.
We currently have no products approved for sale and we cannot guarantee that we will ever have marketable products. We currently invest nearly all of our efforts and financial resources in the research and development of RP-G28, which is currently our only product candidate. Our business currently depends entirely on the successful development and commercialization of RP-G28.
We cannot be certain that RP-G28 will receive regulatory approval, and without regulatory approval we will not be able to market RP-G28 as a prescription drug.
The development of a product candidate and issues relating to its approval and marketing are subject to extensive regulation by the FDA in the United States, the EMA in Europe, and regulatory authorities in other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States or Europe until we receive approval of a NDA from the FDA or a MAA from the EMA, respectively. We have not submitted any marketing applications for RP-G28.
NDAs and MAAs must include extensive preclinical and clinical data and supporting information to establish the product candidate’s safety and effectiveness for each desired indication. NDAs and MAAs must also include significant information regarding the chemistry, manufacturing and controls for the product. Obtaining approval of a NDA or a MAA is a lengthy, expensive and uncertain process, and we may not be successful in obtaining approval. The FDA and the EMA review processes can take years to complete and approval is never guaranteed. If we submit a NDA to the FDA, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any submissions will be accepted for filing and review by the FDA. Regulators of other jurisdictions, such as the EMA, have their own procedures for approval of product candidates. Even if a product is approved, the FDA or the EMA, as the case may be, may limit the indications for which the product may be marketed, require extensive warnings on the product labeling or require expensive and time-consuming clinical trials or reporting as conditions of approval. Regulatory authorities in countries outside of the United States and Europe also have requirements for approval of drug candidates with which we must comply prior to marketing in those countries. Obtaining regulatory approval for marketing of a product candidate in one country does not ensure that we will be able to obtain regulatory approval in any other country. In addition, delays in approvals or rejections of marketing applications in the United States, Europe or other countries may be based upon many factors, including regulatory requests for additional analyses, reports, data, preclinical studies and clinical trials, regulatory questions regarding different interpretations of data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding our product candidates or other products. Also, regulatory approval for any of our product candidates may be withdrawn.
We have completed one Phase 2a trial for RP-G28. Before we submit a NDA to the FDA or a MAA to the EMA for RP-G28 for the treatment of pain and the reduction in the frequency of symptomatic episodes of lactose intolerance, we must successfully complete a Phase 2b trial and Phase 3 trials. In addition, guidelines adopted by the FDA and established by the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) require nonclinical studies that specifically address female fertility to be completed before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g., Phase 3 trials). In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using precautions to prevent pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of any study. To support any Phase 3 study, we plan to perform ICH-compliant embryo-fetal developmental toxicology studies (in two species) and the ICH-recommended standard battery of genotoxicity tests using RP-G28. We also intend to perform work on the characterization of compounds and analytical specifications for RP-G28. We cannot predict whether our future trials and studies will be successful or whether regulators will agree with our conclusions regarding the preclinical studies and clinical trials we have conducted to date.
If we are unable to obtain approval from the FDA, the EMA or other regulatory agencies for RP-G28, or if, subsequent to approval, we are unable to successfully commercialize RP-G28, we will not be able to generate sufficient revenue to become profitable or to continue our operations.
Any statements in this document indicating that RP-G28 has demonstrated preliminary evidence of efficacy are our own and are not based on the FDA’s or any other comparable governmental agency’s assessment of RP-G28 and do not indicate that RP-G28 will achieve favorable efficacy results in any later stage trials or that the FDA or any comparable agency will ultimately determine that RP-G28 is effective for purposes of granting marketing approval.
The FDA and other regulatory agencies outside the United States, such as the EMA, may not agree to our proposed endpoint for approval of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients, in which case we would need to complete an additional clinical trial in order to seek approval outside the United States.
We do not know if the FDA, the EMA or regulatory authorities in other countries will agree with our final primary endpoint for approval of RP-G28. The FDA, the EMA and regulatory authorities in other countries in which we may seek approval for and market RP-G28, may require additional nonclinical studies and/or clinical trials prior to granting approval. It may be expensive and time consuming to conduct and complete additional nonclinical studies and clinical trials that the EMA and other regulatory authorities may require us to perform. As such, any requirement by the EMA or other regulatory authorities that we conduct additional nonclinical studies or clinical trials could materially and adversely affect our business, financial condition and results of operations. Furthermore, even if we receive regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients, the labeling for RP-G28 in the United States, Europe or other countries in which we seek approval may include limitations that could impact the commercial success of RP-G28.
Delays in the commencement, enrollment and completion of clinical trials could result in increased costs to us and delay or limit our ability to obtain regulatory approval for RP-G28 or our other product candidates.
Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs or limit the regulatory approval of RP-G28 or other product candidates we may develop in the future. Although we anticipate that the net proceeds from this offering, together with existing cash and cash equivalents, and interest on our cash balances, will be sufficient to fund our projected operating requirements through the completion of the Phase 2b and Phase 3 trials, we may not be able to complete these trials on time or we may be required to conduct additional clinical trials or nonclinical studies not currently planned to receive approval for RP-G28 as a treatment for lactose intolerance. The commencement, enrollment and completion of clinical trials may be delayed or suspended for a variety of reasons, including:
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inability to obtain sufficient funds required for a clinical trial;
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inability to reach agreements on acceptable terms with prospective CROs and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
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clinical holds, other regulatory objections to commencing or continuing a clinical trial or the inability to obtain regulatory approval to commence a clinical trial in countries that require such approvals;
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discussions with the FDA or non-U.S. regulators regarding the scope or design of our clinical trials;
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inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indications targeted by our product candidates;
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inability to obtain approval from institutional review boards, or IRBs, to conduct a clinical trial at their respective sites;
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severe or unexpected drug-related adverse effects experienced by patients;
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inability to timely manufacture sufficient quantities of the product candidate required for a clinical trial;
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difficulty recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indications as our product candidates;
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inability to get FDA approval of our end points; and
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inability to retain enrolled patients after a clinical trial is underway.
Changes in regulatory requirements and guidance may also occur and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us to resubmit clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. In addition, a clinical trial may be suspended or terminated at any time by us, our future collaborators, the FDA or other regulatory authorities due to a number of factors, including:
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our failure or the failure of our potential future collaborators to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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unforeseen safety issues or any determination that a clinical trial presents unacceptable health risks;
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lack of adequate funding to continue the clinical trial due to unforeseen costs or other business decisions; and
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a breach of the terms of any agreement with, or for any other reason by, future collaborators who have responsibility for the clinical development of our product candidates.
In addition, if we or any of our potential future collaborators are required to conduct additional clinical trials or other nonclinical studies of our product candidates beyond those contemplated, our ability to obtain regulatory approval of these product candidates and to generate revenue from their sales would be similarly harmed.
Clinical failure can occur at any stage of clinical development. The results of earlier clinical trials are not necessarily predictive of future results and any product candidate we or our potential future collaborators advance through clinical trials may not have favorable results in later clinical trials or receive regulatory approval.
Clinical failure can occur at any stage of our clinical development. Clinical trials may produce negative or inconclusive results, and we or our collaborators may decide, or regulators may require us, to conduct additional clinical trials or nonclinical studies. In addition, data obtained from trials and studies are susceptible to varying interpretations, and regulators may not interpret our data as favorably as we do, which may delay, limit or prevent regulatory approval. Success in preclinical studies and early clinical trials does not ensure that subsequent clinical trials will generate the same or similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a product candidate. A number of companies in the pharmaceutical industry, including those with greater resources and experience than us, have suffered significant setbacks in Phase 2b and/or Phase 3 clinical trials, even after seeing promising results in earlier clinical trials.
In addition, the design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well-advanced. We may be unable to design and execute a clinical trial to support regulatory approval. Further, clinical trials of potential products often reveal that it is not practical or feasible to continue development efforts.
If RP-G28, or any of our other product candidates, is found to be unsafe or lack efficacy, we will not be able to obtain regulatory approval for it and our business would be harmed. For example, if the results of our Phase 2b and/or Phase 3 RP-G28 trials do not achieve the primary efficacy endpoints or demonstrate expected safety, the prospects for approval of RP-G28 would be materially and adversely affected.
In some instances, there can be significant variability in safety and/or efficacy results between different trials of the same product candidate due to numerous factors, including changes in trial protocols, differences in composition of the patient populations, adherence to the dosing regimen and other trial protocols and the rate of dropout among clinical trial participants. We do not know whether any Phase 2, Phase 3 or other clinical trials we or any of our potential future collaborators may conduct will demonstrate the consistent or adequate efficacy and safety that would be required to obtain regulatory approval and market RP-G28. If we are unable to bring RP-G28 to market, our ability to create long-term stockholder value will be limited.
Our product candidates may have undesirable side effects which may delay or prevent marketing approval, or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Unforeseen side effects from RP-G28, or other product candidates we may develop in the future, could arise either during clinical development or, if approved, after the approved product has been marketed. The most common side effects observed in clinical trials of RP-G28 were headache (nine out of 57), nausea (three out of 57), upper respiratory tract infection, nasal congestion, and pain (two out of 57). No patients were withdrawn from the study for these side effects.
The results of future clinical trials may show that RP-G28 causes undesirable or unacceptable side effects, which could interrupt, delay or halt clinical trials, and result in delay of, or failure to obtain, marketing approval from the FDA and other regulatory authorities, or result in marketing approval from the FDA and other regulatory authorities with restrictive label warnings.
If RP-G28, or any other product candidate we develop in the future, receives marketing approval and we or others later identify undesirable or unacceptable side effects caused by such product:
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regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;
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we may be required to change instructions regarding the way the product is administered, conduct additional clinical trials or change the labeling of the product;
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we may be subject to limitations on how we may promote the product;
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sales of the product may decrease significantly;
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regulatory authorities may require us to take our approved product off the market;
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we may be subject to litigation or product liability claims; and
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our reputation may suffer.
Any of these events could prevent us or our potential future collaborators from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient reimbursement for our products, it is less likely that they will be widely used.
Market acceptance and sales of RP-G28, or any other product candidates we develop in the future, if approved, will depend on reimbursement policies and may be affected by, among other things, future healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which drugs they will cover and establish payment levels. We cannot be certain that reimbursement will be available for RP-G28 or any other product candidates that we may develop. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, our products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize RP-G28, or other product candidates that we develop.
In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or MMA, changed the way Medicare covers and pays for pharmaceutical products. The legislation established Medicare Part D, which expanded Medicare coverage for outpatient prescription drug purchases by the elderly but provided authority for limiting the number of drugs that will be covered in any therapeutic class. The MMA also introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. Any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain in the United States. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The United States and several other jurisdictions are considering, or have already enacted, a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures in connection with the sale of RP-G28, and any other product candidates that we develop, due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative proposals.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or, collectively, the ACA, became law in the United States. The goal of the ACA is to reduce the cost of health care and substantially change the way health care is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this legislation will have in general or on our business specifically, the ACA may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of RP-G28 or any other product candidates that we may develop. In addition, some members of the U.S. Congress have been seeking to overturn at least portions of the legislation and we expect they will continue to review and assess this legislation and alternative health care reform proposals. We cannot predict whether new proposals will be made or adopted, when they may be adopted or what impact they may have on us if they are adopted.
If we do not obtain protection under the Hatch-Waxman Act and similar legislation outside of the United States by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for a limited Patent Term Extension under the Drug Price Competition and Patent Term Restoration Act of 1984 (which is sometimes referred to as the “Hatch-Waxman Act”), provided our U.S. patent claims a method of treating lactose intolerance that is approved by the FDA. The Hatch-Waxman Act, 35 U.S.C. §156, permits a patent extension of up to five years as compensation for patent term lost during the FDA regulatory review process. The scope of protection afford by the patent during the extended term is not commensurate with the scope of the unextended portion of the patent; for example, the “rights derived” from a method of use patent during the extended period are “limited to any use claimed by the patent and approved for the product.” 35 U.S.C. §156(b)(2). We may not be granted an extension because of, for example, failing to apply for the extension within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable statutory and/or regulatory requirements including, for example, the requirement that the patent to be extended “claim” the approved product or a method of using the approved product. Moreover, the applicable period of extension could be less than we request. If we are unable to obtain patent term extension or if the term of any such extension is shorter than we request, the period during which we will be able to exclude others from marketing their versions of our product will be shortened and our competitors may obtain approval of generic products following our patent expiration, and our revenue could be reduced, possibly materially. Similar concerns are associated with obtaining Supplemental Protection Certificates (SPCs) of certain patents issued in Europe and owned by Inalco, to which we have an exclusive options of assignment, based upon patent terms lost during European regulatory review processes. In the event that we are unable to obtain any patent term extension, the issued patents for RP-G28 are expected to expire in 2030, assuming they withstand any challenge toothier validity and/or patentability.
If we market products in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare laws, commonly referred to as “fraud and abuse” laws, have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. Other jurisdictions such as Europe have similar laws. These laws include false claims and anti-kickback statutes. If we market our products and our products are paid for by governmental programs, it is possible that some of our business activities could be subject to challenge under one or more of these laws.
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid. The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service covered by Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers or formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Most states also have statutes or regulations similar to the federal anti-kickback law and federal false claims laws, which apply to items and services covered by Medicaid and other state programs, or, in several states, apply regardless of the payor. Administrative, civil and criminal sanctions may be imposed under these federal and state laws.
Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of promotional and marketing activities, such as: providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates.
Any delay or disruption in the manufacture and supply of RP-G28 may negatively impact our operations.
We do not intend to manufacture the pharmaceutical products that we plan to sell. We currently have agreements with contract manufacturers for the production of the active pharmaceutical ingredients and the formulation of sufficient quantities of drug product for our Phase 2b and Phase 3 trials of RP-G28 and the other trials and nonclinical studies that we believe we will need to conduct prior to seeking regulatory approval. However, we do not have agreements for commercial supplies of RP-G28 and we may not be able to reach agreements with these or other contract manufacturers for sufficient supplies to commercialize RP-G28 if it is approved.
Reliance on third-party manufacturers entails risks, to which we would not be subject if we manufactured the product candidates ourselves, including:
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the possibility that we are unable to enter into a manufacturing agreement with a third party to manufacture our product candidates;
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the possible breach of the manufacturing agreements by the third parties because of factors beyond our control; and
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the possibility of termination or nonrenewal of the agreements by the third parties before we are able to arrange for a qualified replacement third-party manufacturer.
Any of these factors could cause the delay of approval or commercialization of our product candidates, cause us to incur higher costs or prevent us from commercializing our product candidates successfully. Furthermore, if RP-G28 or other product candidates are approved and contract manufacturers fail to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose potential revenue. It may take several years to establish an alternative source of supply for our product candidates and to have any such new source approved by the government agencies that regulate our products. In the event we do need to identify alternative manufacturing partners, we may have to secure licenses to manufacturing and/or purification technologies, including third-party patent licenses, to allow us to manufacture RP-G28 that is suitable for the late-stage regulatory review process and/or adequate to manufacture commercial quantities of RP-G28.
If the FDA and EMA and other regulatory agencies do not approve the manufacturing facilities of our future contract manufacturers for commercial production, we may not be able to commercialize any of our product candidates.
The facilities used by any contract manufacturer to manufacture RP-G28, or other product candidates we may develop in the future, must be the subject of a satisfactory inspection before the FDA or the regulators in other jurisdictions approve the product candidate manufactured at that facility. We are completely dependent on these third-party manufacturers for compliance with the requirements of U.S. and non-U.S. regulators for the manufacture of our finished products. If our manufacturers cannot successfully manufacture material that conform to our specifications and current good manufacturing practice requirements of any governmental agency whose jurisdiction to which we are subject, our product candidates will not be approved or, if already approved, may be subject to recalls.
Even if our product candidates receive regulatory approval, we may still face future development and regulatory difficulties.
RP-G28 and any other product candidates we develop in the future, if approved, will be subject to ongoing regulatory requirements for labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information. In addition, approved products, manufacturers and manufacturers’ facilities are required to comply with extensive FDA and EMA requirements and requirements of other similar agencies, including ensuring that quality control and manufacturing procedures conform to current Good Manufacturing Practices, or cGMPs. As such, we and our contract manufacturers are subject to continual review and periodic inspections to assess compliance with cGMPs. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production and quality control. We will also be required to report certain adverse reactions and production problems, if any, to the FDA and EMA and other similar agencies and to comply with certain requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label. Accordingly, we may not promote our approved products, if any, for indications or uses for which they are not approved.
If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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issue warning letters;
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mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require us or our potential future collaborators to enter into a consent decree or permanent injunction, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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impose other administrative or judicial civil or criminal penalties;
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withdraw regulatory approval;
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refuse to approve pending applications or supplements to approved applications filed by us or our potential future collaborators;
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impose restrictions on operations, including costly new manufacturing requirements; or
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detain, seize and/or condemn and destroy products.
Risks Relating to the Commercialization of Our Products
Even if approved, our product candidates may not achieve broad market acceptance among physicians, patients and healthcare payors, and as a result our revenues generated from their sales may be limited.
The commercial success of RP-G28, if approved, will depend upon its acceptance among the medical community, including physicians, health care payors and patients. The degree of market acceptance of RP-G28, or other product candidates we may develop in the future, will depend on a number of factors, including:
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limitations or warnings contained in our product candidates’ FDA-approved labeling;
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changes in the standard of care or availability of alternative therapies at similar or lower costs for the targeted indications for such product candidates;
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limitations in the approved clinical indications for such product candidates;
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demonstrated clinical safety and efficacy compared to other products;
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lack of significant adverse side effects;
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sales, marketing and distribution support;
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availability of reimbursement from managed care plans and other third-party payors;
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timing of market introduction and perceived effectiveness of competitive products;
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the degree of cost-effectiveness;
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availability of alternative therapies at similar or lower cost, including generics and over-the-counter products;
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enforcement by the FDA and EMA of laws and rulings that prohibit the illegal sale of RP-G28 (or any other product candidate) as a dietary supplement;
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the extent to which our product candidates are approved for inclusion on formularies of hospitals and managed care organizations;
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whether our product candidates are designated under physician treatment guidelines for the treatment of or reduction of symptoms associated with the indications for which we have received regulatory approval;
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adverse publicity about our product candidates or favorable publicity about competitive products;
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convenience and ease of administration of our product candidates; and
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potential product liability claims.
If our product candidates are approved, but do not achieve an adequate level of acceptance by physicians, patients, the medical community and healthcare payors, sufficient revenue may not be generated from these products and we may not become or remain profitable. In addition, efforts to educate the medical community and third-party payors on the benefits of our product candidates may require significant resources and may never be successful.
We have no internal sales, distribution and/or marketing capabilities at this time and we will have to invest significant resources to develop those capabilities or enter into acceptable third-party sales and marketing arrangements.
We have no internal sales, distribution and/or marketing capabilities at this time. To develop these capabilities, we will have to invest significant amounts of financial and management resources, some of which will be committed prior to any confirmation that RP-G28 will be approved. For product candidates for which we decide to perform sales, marketing and distribution functions ourselves or through third parties, we could face a number of additional risks, including:
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we or our third-party sales collaborators may not be able to attract and build an effective marketing or sales force;
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the cost of securing or establishing a marketing or sales force may exceed the revenues generated by any products; and
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our direct sales and marketing efforts may not be successful.
We may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties.
We may not be successful in establishing and maintaining development and commercialization collaborations, which could adversely affect our ability to develop RP-G28 or other product candidates and our financial condition and operating results.
Because developing pharmaceutical products, conducting clinical trials, obtaining regulatory approval, establishing manufacturing capabilities and marketing approved products are expensive, we may seek to enter into collaborations with companies that have more experience. Additionally, if RP-G28, or any other product candidate we develop in the future, receives marketing approval, we may enter into sales and marketing arrangements with third parties with respect to our unlicensed territories. If we are unable to enter into arrangements on acceptable terms, we may be unable to effectively market and sell our products in our target markets. We expect to face competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, document and implement and they may require substantial resources to maintain. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements for the development of our product candidates.
When we collaborate with a third party for the development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. For example, we may relinquish the rights to RP-G28 in jurisdictions outside of the United States. Our collaboration partner may not devote sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization. The terms of any collaboration or other arrangement that we establish may not be favorable to us. In addition, any collaboration that we enter into may be unsuccessful in the development and commercialization of our product candidates. In some cases, we may be responsible for continuing preclinical and initial clinical development of a product candidate or research program under a collaboration arrangement, and the payment we receive from our collaboration partner may be insufficient to cover the cost of this development. If we are unable to reach agreements with suitable collaborators for our product candidates, we would face increased costs, we may be forced to limit the number of our product candidates we can commercially develop or the territories in which we commercialize them and we might fail to commercialize products or programs for which a suitable collaborator cannot be found. If we fail to achieve successful collaborations, our operating results and financial condition will be materially and adversely affected.
The Company’s pipeline of product candidates beyond RP-G28 is limited.
We intend to develop and commercialize drug candidates in addition to RP-G28 through our research program. Even if we are successful in completing preclinical and clinical development and receiving regulatory approval for one commercially viable drug for the treatment of one disease, we cannot be certain that we will be able to develop and receive regulatory approval for other drug candidates for the treatment of other forms of that disease or other diseases. If we fail to develop and commercialize RP-G28 for the reduction of symptoms associated with lactose intolerance, we will not be successful in developing a pipeline of potential drug candidates to follow RP-G28, and our business prospects could be significantly limited.
Risks Relating to Our Business and Strategy
We may face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
Although we know of no other drug candidates in advanced clinical trials for treating lactose intolerance, the biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have potential competitors in the United States, Europe and other jurisdictions, including major multinational pharmaceutical companies, established biotechnology
companies, specialty pharmaceutical and generic drug companies and universities and other research institutions. Many of these potential competitors have greater financial and other resources, such as larger research and development staff and more experienced marketing and manufacturing organizations. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients and manufacturing pharmaceutical products. These companies also have significantly greater research, sales and marketing capabilities and collaborative arrangements in our target markets with leading companies and research institutions. Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make the product candidates that we develop obsolete. As a result of all of these factors, these potential competitors may succeed in obtaining patent protection and/or FDA approval or discovering, developing and commercializing drugs for the diseases that we are targeting before we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Some of the pharmaceutical and biotechnology companies we expect to compete with include microbiome based development companies: Second Genome, Inc., Seres Health, Inc., Enterome SA, Vedanta Biosciences, Inc., and Microbiome Therapeutics, LLC. In addition, many universities and private and public research institutes may become active in our target disease areas. These potential competitors may succeed in developing, acquiring or licensing on an exclusive basis, technologies and drug products that are more effective or less costly than RP-G28 or any other product candidates that we are currently developing or that we may develop, which could render our products obsolete and noncompetitive.
We believe that our ability to successfully compete will depend on, among other things:
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the results of our and our potential strategic collaborators’ clinical trials and preclinical studies;
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our ability to recruit and enroll patients for our clinical trials;
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the efficacy, safety and reliability of our product candidates;
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the speed at which we develop our product candidates;
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our ability to design and successfully execute appropriate clinical trials;
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our ability to maintain a good relationship with regulatory authorities;
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the ability to get FDA approval of our end points;
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the timing and scope of regulatory approvals, if any;
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our ability to commercialize and market any of our product candidates that receive regulatory approval;
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the price of our products;
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adequate levels of reimbursement under private and governmental health insurance plans, including Medicare;
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our ability to protect intellectual property rights related to our products;
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our ability to manufacture and sell commercial quantities of any approved products to the market; and
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acceptance of our product candidates by physicians and other health care providers.
If our competitors market products that are more effective, safer or less expensive than ours, or that reach the market sooner than ours, we may not achieve commercial success. In addition, the biopharmaceutical industry is characterized by rapid technological change. Because our research approach integrates many technologies, it may be difficult for us to stay abreast of the rapid changes in each technology. If we fail to stay at the forefront of technological change, we may be unable to compete effectively. Technological advances or products developed by our competitors may render our technologies or product candidates obsolete, less competitive or not economical.
We depend on third-party contractors for a substantial portion of our operations and may not be able to control their work as effectively as if we performed these functions ourselves.
We outsource substantial portions of our operations to third-party service providers, including the conduct of preclinical studies and clinical trials, collection and analysis of data, and manufacturing. Our agreements with third-party service providers and CROs are on a study-by-study and project-by-project basis. Typically, we may terminate the agreements with notice and are responsible for the supplier’s previously incurred costs. In addition, any CRO that we retain will be subject to the FDA’s and EMA’s regulatory requirements and similar standards outside of the United States and Europe and we do not have control over compliance with these regulations by these providers. Consequently, if these providers do not adhere to applicable governing practices and standards, the development and commercialization of our product candidates could be delayed or stopped, which could severely harm our business and financial condition.
Because we have relied on third parties, our internal capacity to perform these functions is limited to management oversight. Outsourcing these functions involves the risk that third parties may not perform to our standards, may not produce results in a timely manner or may fail to perform at all. Although we have not experienced any significant difficulties with our third-party contractors, it is possible that we could experience difficulties in the future. In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. There are a limited number of third-party service providers that specialize or have the expertise required to achieve our business objectives. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. We currently have a small number of employees, which limits the internal resources we have available to identify and monitor third-party service providers. To the extent we are unable to identify, retain and successfully manage the performance of third-party service providers in the future, our business may be adversely affected, and we may be subject to the imposition of civil or criminal penalties if their conduct of clinical trials violates applicable law.
A variety of risks associated with our possible international business relationships could materially adversely affect our business.
We may enter into agreements with other third parties for the development and commercialization of RP-G28, or other product candidates we develop in the future, in international markets. International business relationships subject us to additional risks that may materially adversely affect our ability to attain or sustain profitable operations, including:
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differing regulatory requirements for drug approvals internationally;
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potentially reduced protection for intellectual property rights;
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potential third-party patent rights in the United States and/or in countries outside of the United States;
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the potential for so-called “parallel importing,” which is what occurs when a local seller, faced with relatively high local prices, opts to import goods from another jurisdiction with relatively low prices, rather than buying them locally;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability, particularly in non-U.S. economies and markets, including several countries in Europe;
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compliance with tax, employment, immigration and labor laws for employees traveling abroad;
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taxes in other countries;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the United States;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
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business interruptions resulting from geo-political actions, including war and terrorism, or natural disasters, including earthquakes, volcanoes, typhoons, floods, hurricanes and fires.
We will need to expand our operations and increase the size of our company, and we may experience difficulties in managing growth.
As we increase the number of ongoing product development programs and advance our product candidates through preclinical studies and clinical trials, we will need to increase our product development, scientific and administrative headcount to manage these programs. In addition, to meet our obligations as a public company, we will need to increase our general and administrative capabilities. Our management, personnel and systems currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and various projects requires that we:
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successfully attract and recruit new employees or consultants with the expertise and experience we will require;
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manage our clinical programs effectively, which we anticipate being conducted at numerous clinical sites;
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develop a marketing and sales infrastructure; and
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continue to improve our operational, financial and management controls, reporting systems and procedures.
If we are unable to successfully manage this growth and increased complexity of operations, our business may be adversely affected.
We may not be able to manage our business effectively if we are unable to attract and retain key personnel and consultants.
We may not be able to attract or retain qualified management, finance, scientific and clinical personnel and consultants due to the intense competition for qualified personnel and consultants among biotechnology, pharmaceutical and other businesses. If we are not able to attract and retain necessary personnel and consultants to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.
We are highly dependent on the development, regulatory, commercialization and business development expertise of Michael D. Step, our Chief Executive Officer, Andrew J. Ritter, our Founder and President, and Ira E. Ritter, our Executive Chairman and Chief Strategic Officer. If we were to lose one or more of these key employees, our ability to implement our business strategy successfully could be seriously harmed. Any of our executive officers may terminate their employment at any time. Replacing any of these persons would be difficult and could take an extended period of time because of the limited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercialize products successfully.
There is also a risk that other obligations could distract our officers and employees, including any of our other part-time employees, from our business, which could have negative impact on our ability to effectuate our business plans.
In addition, we have scientific and clinical advisors and consultants who assist us in formulating our research, development and clinical strategies. Competition to hire and retain consultants from a limited pool is intense. Further, because these advisors are not our employees, they may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us, and typically they will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, our advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with ours.
Failure to build our finance infrastructure and improve our accounting systems and controls could impair our ability to comply with the financial reporting and internal controls requirements for publicly traded companies.
As a public company, we will operate in an increasingly demanding regulatory environment, which requires us to comply with the Sarbanes-Oxley Act, and the related rules and regulations of the SEC, expanded disclosure requirements, accelerated reporting requirements and more complex accounting rules. Company responsibilities required by the Sarbanes-Oxley Act include establishing corporate oversight and adequate internal control over financial reporting and disclosure controls and procedures. Effective internal controls are necessary for us to produce reliable financial reports and are important to help prevent financial fraud.
We have begun implementing our system of internal controls over financial reporting and preparing the documentation necessary to perform the evaluation needed to comply with Section 404(a) of the Sarbanes-Oxley Act. However, we anticipate that we will need to retain additional finance capabilities and build our financial infrastructure as we transition to operating as a public company, including complying with the requirements of Section 404 of the Sarbanes-Oxley Act. As we begin operating as a public company following this offering, we will continue improving our financial infrastructure with the retention of additional financial and accounting capabilities, the enhancement of internal controls and additional training for our financial and accounting staff.
Section 404(a) of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the SEC. However, for as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Until we are able to expand our finance and administrative capabilities and establish necessary financial reporting infrastructure, we may not be able to prepare and disclose, in a timely manner, our financial statements and other required disclosures or comply with the Sarbanes-Oxley Act or existing or new reporting requirements. If we cannot provide reliable financial reports or prevent fraud, our business and results of operations could be harmed and investors could lose confidence in our reported financial information.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading, which could significantly harm our business.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with the regulations of the FDA and non-U.S. regulators, provide accurate information to the FDA and non-U.S. regulators, comply with health care fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have adopted an employee handbook, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.
We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.
The use of our product candidates in clinical trials and the sale of any products for which we may obtain marketing approval expose us to the risk of product liability claims. Product liability claims may be brought against us or our potential future collaborators by participants enrolled in our clinical trials, patients, health care providers or others using, administering or selling our products. If we cannot successfully defend ourselves against any such claims, we would incur substantial liabilities. Regardless of merit or eventual outcome, product liability claims may result in:
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withdrawal of clinical trial participants;
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termination of clinical trial sites or entire trial programs;
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costs of related litigation;
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substantial monetary awards to patients or other claimants;
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decreased demand for our product candidates and loss of revenues;
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impairment of our business reputation;
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diversion of management and scientific resources from our business operations; and
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the inability to commercialize our product candidates.
We expect to obtain product liability insurance coverage for our clinical trials in the United States and in selected other jurisdictions where we intend to conduct clinical trials at levels we believe are sufficient and consistent with industry standards for companies at our stage of development. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to product liability. We intend to expand our insurance coverage for products to include the sale of commercial products if we obtain marketing approval for our product candidates in development, but we may be unable to obtain commercially reasonable product liability insurance for any products approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could decrease our cash resources and adversely affect our business.
Our insurance policies are expensive and only protect us from some business risks, which will leave us exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we currently maintain include general liability ($2 million coverage), employment practices liability, workers’ compensation, and directors’ and officers’ insurance at levels we believe are typical for a company in our industry and at our stage of development. We do not currently carry clinical trial liability insurance or products liability insurance, but we are currently seeking to purchase such insurance and we expect to have obtained such insurance prior to the completion of this offering at levels we believe are sufficient and consistent with industry standards for companies at our stage of development. We do not know, however, if we will be able to maintain insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our financial position and results of operations.
If we engage in an acquisition, reorganization or business combination, we will incur a variety of risks that could adversely affect our business operations or our stockholders.
From time to time we have considered, and we will continue to consider in the future, strategic business initiatives intended to further the expansion and development of our business. These initiatives may include acquiring businesses, technologies or products or entering into a business combination with another company. If we pursue such a strategy, we could, among other things:
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issue equity securities that would dilute our current stockholders’ percentage ownership;
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incur substantial debt that may place strains on our operations;
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spend substantial operational, financial and management resources to integrate new businesses, technologies and products;
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assume substantial actual or contingent liabilities;
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reprioritize our development programs and even cease development and commercialization of our product candidates; or
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merge with, or otherwise enter into a business combination with, another company in which our stockholders would receive cash and/or shares of the other company on terms that certain of our stockholders may not deem desirable.
Although we intend to evaluate and consider acquisitions, reorganizations and business combinations in the future, we have no agreements or understandings with respect to any acquisition, reorganization or business combination at this time.
Risks Relating to Our Intellectual Property
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly materially.
Our commercial success will depend in part on obtaining, maintaining and enforcing patent protection and on developing, preserving and enforcing current trade secret protection. In particular, it will depend in part on our ability to obtain, maintain and enforce patents, especially those related to methods of using our current product, RP-G28, and other future drug candidates, and those related to the methods used to develop and manufacture our products, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents (and/or trade secrets) that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will withstand subsequent challenges to their validity and or patentability, or if they will be commercially useful in protecting our product candidates, discovery programs and processes. Furthermore, we cannot be sure that our existing patents and patent applications will embrace (or “claim”) the particular uses for RP-G28 that will be approved by FDA.
The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
No consistent policy regarding the patentability and/or validity of patent claims related to pharmaceutical patents has emerged, to date, in the United States or in most jurisdictions outside of the United States. Changes in either the patent laws (be they substantive or procedural) or in the interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that will issue or will be enforceable in the patents that have or may be issued from the patents and applications we currently own or may in the future own or license from third parties. Further, if any patents we obtain, or to which we obtain licenses, are deemed invalid, unpatentable and unenforceable, our ability to commercialize or license our technology could be adversely affected.
In the future others may file patent applications covering products, uses for products, and manufacturing techniques and related technologies that are similar, identical or competitive to ours or important to our business. We cannot be certain that any patent application owned by a third party will not have priority over patent applications filed or in-licensed by us in the future, or that we or our licensors will not be involved in interference, opposition, inter partes review or invalidity proceedings before U.S. or non-U.S. patent offices or courts.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to develop a platform similar to, or better than, ours in a way that is not covered by the claims of our patents;
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others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of our patents;
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others may be able to manufacture compounds that are similar or identical to our product candidates using processes that are not covered by the claims of our method of making patents;
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others may obtain regulatory approval for uses of compounds, similar or identical to our product, that are not covered by the claims of our method of use patents;
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we may not be able to obtain licenses for patents that are essential to the process of making the product;
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we might not have been the first to make the inventions covered by our pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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any patents that we obtain may not provide us with any competitive advantages;
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we may not develop additional proprietary technologies that are patentable; or
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the patents of others may have an adverse effect on our business.
Patents covering methods of using RP-G28 expire in 2030 if the appropriate maintenance fee renewal, annuity, or other government fees are paid, unless a patent term extension based on regulatory delay is obtained. We expect that expiration in 2030 of some of our method-of-use patents covering use of RP-G28 for treating lactose intolerance will have a limited impact on our ability to protect our intellectual property in the United States, where we have additional issued patents covering this use that extend until 2030. In other countries, our pending patent applications covering use of RP-G28 for treating other indications, if issued, would expire in 2030. We will attempt to mitigate the effect of patent expiration by seeking data exclusivity, or the foreign equivalent thereof, in conjunction with product approval, as well as by filing additional patent applications covering improvements in our intellectual property.
We expect that the other patent applications for the RP-G28 portfolio, if issued, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, would expire in 2030. We own pending applications in the United States and Europe covering RP-G28 analogs, and uses of such analogs as therapeutics to treat a variety of disorders, including lactose intolerance. Patent protection, to the extent it issues, would be expected to extend to 2030, unless a patent term extension based on regulatory delay is obtained.
Due to the patent laws of a country, or the decisions of a patent examiner in a country, or our own filing strategies, we may not obtain patent coverage for all of our product candidates or methods involving these candidates in the parent patent application. We plan to pursue divisional patent applications or continuation patent applications in the United States and other countries to obtain claim coverage for inventions which were disclosed but not claimed in the parent patent application.
We may also rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or feasible. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors.
Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
RP-G28 does not have composition of matter patent protection.
Although we own certain patents and patent applications with claims directed to specific methods of using RP-G28 to treat lactose intolerance, RP-G28 has no composition of matter patent protection in the United States or elsewhere. As a result, we may be limited in our ability to list our patents in the FDA’s Orange Book if the use of our product, consistent with its FDA-approved label, would not fall within the scope of our patent claims. Also, our competitors may be able to offer and sell products so long as these competitors do not infringe any other patents that we (or third parties) hold, including patents with claims directed to the manufacture of RP-G28 and/or method of use patents. In general, method of use patents are more difficult to enforce than composition of matter patents because, for example, of the risks that FDA may approve alternative uses of the subject compounds not covered by the method of use patents, and others may engage in off-label sale or use of the subject compounds. Physicians are permitted to prescribe an approved product for uses that are not described in the product’s labeling. Although off-label prescriptions may infringe our method of use patents, the practice is common across medical specialties and such infringement is difficult to prevent or prosecute. FDA approval of uses that are not covered by our patents would limit our ability to generate revenue from the sale of RP-G28, if approved for commercial sale. Off-label sales would limit our ability to generate revenue from the sale of RP-G28, if approved for commercial sale.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights.
If we choose to go to court to stop another party from using the inventions claimed in any patents we obtain, that individual or company may seek a post grant review (including inter parte review) of our patents, and has the right to ask the court to rule that such patents are invalid or should not be enforced against that third party. These lawsuits and administrative proceedings are expensive and would consume time and resources and divert the attention of managerial and scientific personnel even if we were successful in stopping the infringement of such patents. In addition, there is a risk that the court or administrative body will decide that such patents are not valid or unpatentable and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity/patentability of such patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to such patents. In addition, the U.S. Supreme Court and the Court of Appeals for the Federal Circuit have recently articulated and/or modified certain tests used by the U.S. Patent and Trademark Office, or USPTO, in assessing patentability and by the courts in assessing validity and claim scope, which may decrease the likelihood that we will be able to obtain patents and increase the likelihood that others may succeed in challenging any patents we obtain or license.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our product candidates.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. We cannot guarantee that our products, our methods of manufacture, or our uses of RP-G28 (or our other product candidates), will not infringe third-party patents. Furthermore, a third party may claim that we or our manufacturing or commercialization collaborators are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and scientific personnel. There is a risk that a court would decide that we or our commercialization collaborators are infringing the third party’s patents and would order us or our collaborators to stop the activities covered by the patents. In that event, we or our commercialization collaborators may not have a viable way around the patent and may need to halt commercialization of the relevant product. In addition, there is a risk that a court will order us or our collaborators to pay the other party damages for having violated the other party’s patents. In the future, we
may agree to indemnify our commercial collaborators against certain intellectual property infringement claims brought by third parties. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The scope of coverage of a patent is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, the patentee would need to demonstrate, by a preponderance of the evidence that our products or methods infringe the patent claims of the relevant patent, and we would need to demonstrate either that we do not infringe or, by clear and convincing evidence, that the patent claims are invalid; we may not be able to do this. Proving invalidity is difficult. For example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were the first to invent the technology, because:
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some patent applications in the United States may be maintained in secrecy until the patents are issued;
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patent applications in the United States are typically not published until at least 18 months after the earliest asserted priority date; and
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publications in the scientific literature often lag behind actual discoveries.
Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the USPTO to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent applications, and may be entitled to priority over our applications in such jurisdictions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the USPTO and various governmental patent agencies outside of the United States in several stages over the lifetime of the patents and/or applications. We employ an outside firm and rely on our outside counsel to pay these fees due to non-U.S. patent agencies and this outside firm has systems in place to ensure compliance on payment of fees. The USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment
of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a material adverse effect on our business.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and products could be significantly diminished.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We may be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
We rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA, as part of its Transparency Initiative, is currently considering whether to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Failure to secure trademark registrations could adversely affect our business.
We have not developed a trademark for our RP-G28 product. Hence, we do not currently own any actual or potential trademark rights associated with our RP-G28 product. If we seek to register additional trademarks, including trademarks associated with our RP-G28 product, our trademark applications may not be allowed for registration or our registered trademarks may not be maintained or enforced. During trademark registration proceedings, we may receive rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many other jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings. If we do not secure registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we otherwise would.
Risks Relating to Our Common Stock and this Offering
No public market for our common stock currently exists and an active trading market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
Our share price may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell your shares at or above the offering price.
The initial public offering price for our shares will be determined by negotiations between us and the representatives of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of shares of our common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:
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results of our clinical trials;
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results of clinical trials of our competitors’ products;
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regulatory actions with respect to our products or our competitors’ products;
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actual or anticipated fluctuations in our financial condition and operating results;
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actual or anticipated changes in our growth rate relative to our competitors;
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actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition from existing products or new products that may emerge;
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announcements by us, our potential future collaborators or our competitors of significant acquisitions, strategic collaborations, joint ventures, or capital commitments;
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issuance of new or updated research or reports by securities analysts;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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additions or departures of key management or scientific personnel;
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disputes or other developments related to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our technologies;
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announcement or expectation of additional financing efforts;
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sales of our common stock by us, our insiders or our other stockholders;
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market conditions for biopharmaceutical stocks in general; and
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general economic and market conditions.
Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of shares of our common stock. In addition, such fluctuations could subject us to securities class action litigation, which could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business. If the market price of shares of our common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment.
We have three significant stockholders, which will limit your ability to influence corporate matters and may give rise to conflicts of interest.
Javelin Venture Partners I SPV I, LLC, or Javelin I, Javelin Venture Partners, L.P., or Javelin, and Stonehenge Partners LLC, or Stonehenge, are our largest stockholders. When this offering is completed, Javelin I is expected to beneficially own shares representing approximately % of our common stock, Javelin is expected to beneficially own shares representing approximately % of our common stock, and Stonehenge is expected to beneficially own shares representing % of our common stock, without
giving effect to any shares that may be purchased by them in the offering. Accordingly, Javelin I, Javelin and Stonehenge will continue to exert significant influence over us and any action requiring the approval of the holders of our common stock, including the election of directors and the approval of significant corporate transactions. This concentration of voting power, which would increase to the extent Javelin I, Javelin and/or Stonehenge are allocated and purchase shares in this offering, makes it less likely that any other holder of our common stock or our directors will be able to affect the way we are managed and could delay or prevent an acquisition of us on terms that other stockholders may desire. In addition, if Javelin I, Javelin and/or Stonehenge retain a majority of our common stock after this offering, they will be able to control all matters submitted to our stockholders for approval (including the election of directors and approval of significant corporate transactions), as well as our management and affairs. In addition, if Javelin I, Javelin or Stonehenge holds a majority of our common stock following this offering, we will be deemed a “controlled company” for purposes of NASDAQ listing requirements. Under NASDAQ rules, a “controlled company” may elect not to comply with certain NASDAQ corporate governance requirements, including (i) the requirement that a majority of its board of directors consist of independent directors, (ii) the requirement that the compensation of its officers be determined or recommended to the board of directors by a majority of independent directors or a compensation committee that is composed entirely of independent directors, and (iii) the requirement that director nominees be selected or recommended to the board of directors by a majority of independent directors or a nominating committee that is composed of entirely independent directors.
Furthermore, the interests of Javelin I, Javelin and Stonehenge may not always coincide with your interests or the interests of other stockholders and Javelin I, Javelin and Stonehenge may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.
We have broad discretion in the use of net proceeds from this offering and may not use them effectively.
We intend to use substantially all of the net proceeds from this offering to fund (i) the continued clinical development of RP-G28 for the reduction of symptoms associated with lactose intolerance, including our anticipated Phase 2b trial and non-clinical development, (ii) expenses associated with the manufacture and product development of RP-G28, and (iii) the exploration of potential therapeutic indications and orphan indications. Any remaining amounts will be used for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property. Although we currently intend to use the net proceeds from this offering in such a manner, we will have broad discretion in the application of the net proceeds. Our failure to apply these funds effectively could affect our ability to continue to develop and commercialize RP-G28 or other future product candidates.
Being a public company will increase our expenses and administrative burden.
As a public company, we will incur significant legal, insurance, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will need to adopt additional internal controls and disclosure controls and procedures, retain a transfer agent, adopt an insider trading policy and bear all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws.
In addition, laws, regulations and standards applicable to public companies relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act and related regulations implemented by the SEC and NASDAQ, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment will result in increased general and administrative expenses and may divert management’s time and attention from product development
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. In connection with this offering, we are increasing our directors’ and officers’ insurance coverage, which will increase our insurance cost. In the future, it will be more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.
We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
The initial public offering price will be substantially higher than the net tangible book value per share of shares of our common stock based on the total value of our tangible assets less our total liabilities immediately following this offering. Therefore, if you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of $ per share in the price you pay for shares of our common stock as compared to its pro forma as adjusted net tangible book value, assuming an initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus. To the extent outstanding options to purchase shares of common stock that are in the money are exercised, there will be further dilution. For further information on this calculation, see “Dilution” elsewhere in this prospectus.
A significant portion of our total outstanding shares of common stock is restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur in the future. These sales, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of , assuming an initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus. Of these shares, shares may be resold in the public market immediately and the remaining shares are currently restricted under securities laws or as a result of lock-up agreements but will be able to be resold after this offering as described in the “Shares Eligible for Future Sale” section of this prospectus. We also intend to register all [•] shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance and once vested, subject to the 180 day lock-up periods under the lock-up agreements described in the “Underwriting” section of this prospectus.
Future sales and issuances of our common stock or rights to purchase common stock pursuant to our equity incentive plans could result in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.
In connection with this offering, we have agreed, subject to limited exceptions, not to issue, sell or transfer any shares of common stock for 180 days after the date of this prospectus without the consent of Aegis Capital Corp. Our officers, directors and certain stockholders have agreed before the commencement of this offering, subject to limited exceptions, not to sell or transfer any shares of common stock for 180 days after the date of this prospectus without the consent of Aegis Capital Corp. However, Aegis Capital Corp. may release these shares from any restrictions at any time. We cannot predict what effect, if any, market sales of shares held by any stockholder or the availability of shares for future sale will have on the market price of our common stock.
As of December 31, 2014, we had options to purchase 12,789,327 shares outstanding under our stock plans. Sales of shares granted under our equity incentive plans may result in material dilution to our existing stockholders, which could cause our share price to fall.
In addition, we are registering the shares of our common stock underlying the warrants to be issued to the representative of the underwriters in connection with this offering as described in the “Underwriting — Representative’s Warrants” section of this prospectus.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and trading volume could decline.
The trading market for our common stock will depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. There can be no assurance that analysts will cover us or provide favorable coverage. If one or more of the analysts who cover us downgrade our stock or change their opinion of our stock, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
The NASDAQ Capital Market may not list our securities, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
We anticipate that our securities will be listed on The NASDAQ Capital Market, a national securities exchange, upon consummation of this offering. Although, after giving effect to this offering, we expect to meet, on a pro forma basis, NASDAQ’s minimum initial listing standards, which generally mandate that we meet certain requirements relating to stockholders’ equity, market capitalization, aggregate market value of publicly held shares and distribution requirements, we cannot assure you that we will be able to meet those initial listing requirements. If The NASDAQ Capital Market does not list our securities for trading on its exchange, we could face significant material adverse consequences, including:
•
a limited availability of market quotations for our securities;
•
reduced liquidity with respect to our securities;
•
a determination that our shares of common stock are “penny stock” which will require brokers trading in our shares of common stock to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares of common stock;
•
a limited amount of news and analyst coverage for our company; and
•
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Assuming our common stock will be listed on The NASDAQ Capital Market, our common stock will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on The NASDAQ Capital Market, our common stock would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Our failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock.
If after listing we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to de-list our common stock. Such a de-listing would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
If our shares become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on The NASDAQ Capital Market and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of our company, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective upon the closing of this offering, may discourage, delay or prevent a merger, acquisition or other change in control of our company that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions provide that:
•
the authorized number of directors can be changed only by resolution of our board of directors;
•
our bylaws may be amended or repealed by our board of directors or our stockholders;
•
stockholders may not call special meetings of the stockholders or fill vacancies on the board of directors;
•
our board of directors is authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve;
•
our stockholders do not have cumulative voting rights, and therefore our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors; and
•
our stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder meeting.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against us and may reduce the amount of money available to us.
As permitted by Section 102(b)(7) of the DGCL, our restated certificate of incorporation to be in effect upon the completion of this offering will limit the liability of our directors to the fullest extent permitted by law. In addition, as permitted by Section 145 of the DGCL, our restated certificate of incorporation and restated bylaws to be in effect upon the completion of this offering will provide that we shall indemnify, to the fullest extent authorized by the DGCL, each person who is involved in any litigation or other proceeding because such person is or was a director or officer of our company or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith. Our restated certificate of incorporation to be in effect upon the completion of this offering will provide that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification, except in the case of a claim for an advancement of expenses, in which case such period is 20 days, our restated certificate of incorporation and our restated bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense to such action.
Section 145 of the DGCL permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (
i.e.
, one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
The rights conferred in the restated certificate of incorporation and the restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons. We have entered into or plan to enter into indemnification agreements with each of our officers and directors, the form of which is attached as an exhibit to the registration statement of which this prospectus is a part.
The above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us. Although we plan to increase the coverage under our directors’ and officers’ liability insurance, certain liabilities or expenses covered by our indemnification obligations may not be covered by such insurance or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to bring a claim against our company.
We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.
We do not anticipate paying cash dividends in the future. As a result, only appreciation of the market price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2014, we had federal net operating loss carryforwards, or NOLs, of approximately $9.7 million which begin to expire in 2028. Our ability to utilize our NOLs may be limited under Section 382 and 383 of the Internal Revenue Code. The limitations apply if an ownership change, as defined by Section 382, occurs. Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization of the NOLs, could be substantially limited. Additionally, U.S. tax laws limit the time during which these carryforwards may be utilized against future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:
•
our ability to obtain additional financing;
•
our use of the net proceeds from this offering;
•
the accuracy of our estimates regarding expenses, future revenues and capital requirements;
•
the success and timing of our preclinical studies and clinical trials;
•
our ability to obtain and maintain regulatory approval of RP-G28 and any other product candidates we may develop, and the labeling under any approval we may obtain;
•
regulatory developments in the United States and other countries;
•
the performance of third-party manufacturers;
•
our plans to develop and commercialize our product candidates;
•
our ability to obtain and maintain intellectual property protection for our product candidates;
•
the successful development of our sales and marketing capabilities;
•
the potential markets for our product candidates and our ability to serve those markets;
•
the rate and degree of market acceptance of any future products;
•
the success of competing drugs that are or become available; and
•
the loss of key scientific or management personnel.
These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factors” section, that could cause actual future results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
The forward-looking statements in this prospectus represent our views as of the date of this prospectus. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus.
This prospectus contains estimates made, and other statistical data published, by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications,
surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common stock in this offering will be approximately $ million after deducting underwriting discounts and commissions and estimated offering expenses payable by us and assuming an initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus. If the over-allotment option is exercised in full, we estimate that our net proceeds will be approximately $ million. A $1.00 increase (decrease) in the assumed initial public offering price per share of $ , the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and estimated offering expenses payable by us.
The principal purposes of this offering are to obtain additional capital to support our operations, to create a public market for our common stock and to facilitate our future access to the public equity markets. We intend to use the net proceeds from this offering as follows:
•
approximately $ million to fund the continued clinical development of RP-G28 for the reduction of symptoms associated with lactose intolerance, including our anticipated Phase 2b trial and non-clinical development;
•
approximately $ million to fund expenses associated with the manufacture and product development of RP-G28;
•
approximately $ million to explore potential orphan indications; and
•
approximately $ million for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property.
We estimate that the net proceeds of this offering, together with our existing cash and cash equivalents as of December 31, 2014, will enable us to complete our planned Phase 2b trial. The amount and timing of our actual expenditures, however, will depend upon numerous factors, including the status and results of our Phase 2b trial and research and development efforts. Furthermore, we anticipate that we will need to secure additional funding for the further development of RP-G28 and for the development of our other product candidates.
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above. The amounts and timing of our actual use of net proceeds will vary depending on numerous factors, including our ability to obtain additional financing, the relative success and cost of our research, preclinical and clinical development programs. As a result, management will have broad discretion in the application of the net proceeds, and investors will be relying on our judgment regarding the application of the net proceeds of this offering. In addition, we might decide to postpone or not pursue other clinical trials or preclinical activities if the net proceeds from this offering and the other sources of cash are less than expected.
Pending their use, we plan to invest the net proceeds from this offering in a variety of capital preservation instruments, including short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. See “Risk Factors — Risks Relating to Our Common Stock and this Offering — We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.”
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2014:
•
on an actual basis;
•
on a pro forma basis after giving effect to (i) the issuance of 1,469,994 shares of our Series B preferred stock to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering, (ii) the conversion of all of our preferred stock outstanding immediately prior to this offering (including the preferred stock issued pursuant to subparagraphs (i)) into 23,757,162 shares of common stock, and
•
on a pro forma as adjusted basis to give further effect to our issuance and sale of shares of our common stock in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The unaudited pro forma as adjusted information below is prepared for illustrative purposes only and our capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with “Selected Financial Data,” our financial statements and the related notes appearing at the end of this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus.
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As of December 31, 2014
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Actual
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Pro Forma
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Pro Forma
As Adjusted
(1)
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(Unaudited)
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Cash and cash equivalents
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$
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2,747,248
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|
|
|
$
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2,747,248
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|
|
|
|
|
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Long-term debt (inclusive of current portion)
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|
|
|
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—
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|
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|
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—
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|
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Preferred stock subject to redemption, $0.001 par value, 16,378,646 shares authorized, 13,399,668 shares issued and outstanding, actual; no shares issued and outsanding, pro forma; and [•] shares authorized, no shares issued and outstanding, pro forma as adjusted
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16,203,612
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—
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Preferred stock, $0.001 par value, 8,887,500 shares
authorized, issued and outstanding, actual; 8,887,500
shares authorized, no shares issued and outsanding, pro
forma; and [•] shares authorized, no shares issued and
outstanding, pro forma as adjusted
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8,888
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|
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—
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|
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Common stock, $0.001 par value, 50,000,000 shares
authorized, 3,327,500 shares issued and outstanding,
actual; 50,000,000 shares authorized, 27,084,662 shares
issued and outsanding, pro forma; and [•] shares
authorized, [•] shares issued and outstanding, pro forma
as adjusted
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3,328
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27,085
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Additional paid-in capital
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3,397,061
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|
|
19,585,804
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
|
|
(17,904,319
)
|
|
|
|
|
|
(17,904,319
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
|
|
(14,495,042
)
|
|
|
|
|
|
1,708,570
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
(1)
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) each of the pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ equity and total capitalization by $ million, assuming the shares offered by us as set forth on the cover of this prospectus remain the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The number of shares of common stock to be outstanding after this initial public offering is based on an aggregate of 27,084,662 shares outstanding immediately prior to this offering, after taking into account (i) the issuance of 1,469,994 shares of our Series B preferred stock to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering, (ii) the conversion of all of our preferred stock outstanding immediately prior to this offering (including the preferred stock issued pursuant to subparagraphs (i)) into 23,757,162 shares of common stock, and excludes:
•
2,991,016 shares of common stock issuable upon exercise of outstanding warrants;
•
12,789,327 shares of common stock issuable upon exercise of outstanding options as of December 31, 2014, at a weighted average exercise price of $1.00 per share, of which 1,159,997 shares are vested as of such date;
•
[•] shares of common stock issuable upon exercise of options that are contingently issuable upon our raising a minimum of $15 million in one or more private or public offerings of our securities on or before October 1, 2015;
•
[•] shares of common stock reserved for future issuance under our 2015 Plan (including 14,630,034 shares available for issuance under our 2008 Stock Plan, or the 2008 Stock Plan, and 500,000 shares available for issuance under our 2009 Stock Plan, or the 2009 Stock Plan, which shares will be added to our 2015 Plan);
•
any shares of common stock issuable upon exercise of the underwriters’ over-allotment option; and
•
any shares of common stock that will underlie the representative’s warrants.
DILUTION
If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Dilution results from the fact that the initial public offering price per share is substantially in excess of the book value (deficit) per share attributable to the existing stockholders for the presently outstanding stock. As of December 31, 2014, our net tangible book value was approximately $1.7 million, or $0.51 per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by 3,327,500, the number of shares of common stock outstanding on December 31, 2014.
Our pro forma net tangible book value as of December 31, 2014 was approximately $1.7 million, or $0.06 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding, as of December 31, 2014, after giving effect to (i) the issuance of 1,469,994 shares of our Series B Preferred Stock to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering, (ii) the conversion of all of our preferred stock outstanding immediately prior to this offering (including the preferred stock issued pursuant to subparagraphs (i)) into 23,757,162 shares of common stock.
After giving effect to the sale of shares of our common stock in this offering, assuming an initial public offering price of $ per share, the mid-point of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2014 would have been $ million, or $ per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of approximately $ per share to new investors purchasing shares of our common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after the offering from the amount of cash that a new investor paid for a share of common stock.
The following table illustrates this dilution on a per share basis:
|
|
Assumed initial public offering price per share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
Historical net tangible book value per share as of December 31,
2014
|
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
Decrease per share due to the conversion of all shares of preferred stock
|
|
|
|
$
|
(0.45
)
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share as of December 31, 2014
|
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
Increase per share attributable to new investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share after this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution per share to new investors
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
If the underwriters exercise their option to purchase additional shares in full, the pro forma as adjusted net tangible book value per share after giving effect to the offering would be $ per share. This represents an increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders and dilution in pro forma as adjusted net tangible book value of $ per share to new investors.
A $1.00 increase (decrease) in the assumed initial public offering price of $ , the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $ million and the pro forma as adjusted net tangible book value per share after this offering by $ per share and would increase (decrease) the
dilution per share to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. The information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of the offering determined at pricing.
The following table summarizes, on a pro forma as adjusted basis as of December 31, 2014, the total number of shares purchased from us, the total consideration paid, or to be paid, and the average price per share paid, or to be paid, by existing stockholders and by new investors in this offering at an assumed initial public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid.
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
Per Share
|
|
|
|
|
|
Number
|
|
|
Percentage
|
|
|
Amount
|
|
|
Percentage
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
New Investors
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
|
|
%
|
|
|
|
|
$
|
|
|
|
|
|
The table above is based on 27,084,662 shares of common stock outstanding immediately prior to the offering, consisting of (i) 3,327,500 shares of common stock outstanding on December 31, 2014, (ii) the issuance of 1,469,994 shares of our Series B preferred stock to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering, (iii) the conversion of all of our preferred stock outstanding immediately prior to this offering (including the preferred stock issued pursuant to subparagraphs (ii)) into 23,757,162 shares of common stock.
The table above does not include:
•
2,991,016 shares of common stock issuable upon exercise of outstanding warrants;
•
12,789,327 shares of common stock issuable upon exercise of outstanding options as of December 31, 2014, at a weighted average exercise price of $1.00 per share, of which 1,159,997 shares are vested as of such date;
•
[•] shares of common stock issuable upon exercise of options that are contingently issuable upon our raising a minimum of $15 million in one or more private or public offerings of our securities on or before October 1, 2015;
•
[•] shares of common stock reserved for future issuance under our 2015 Plan (including 14,630,034 shares available for issuance under our 2008 Stock Plan, or the 2008 Stock Plan, and 500,000 shares available for issuance under our 2009 Stock Plan, or the 2009 Stock Plan, which shares will be added to our 2015 Plan);
•
any shares of common stock issuable upon exercise of the underwriters’ over-allotment option; and
•
any shares of common stock that will underlie the representative’s warrants.
If the underwriters exercise their option to purchase additional shares in full, the following will occur:
•
the percentage of shares of our common stock held by existing stockholders will decrease to approximately % of the total number of shares of our common stock outstanding after this offering; and
•
the number of shares of our common stock held by new investors will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering.
To the extent that outstanding options are exercised, you will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Statements Regarding Forward-Looking Statements and Industry Data” for a discussion of the uncertainties and assumptions associated with these statements. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this prospectus.
Overview
Ritter Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases. We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health. We have completed a Phase 2a clinical trial of our leading product candidate, RP-G28, an orally administered, high purity galacto-oligosaccharide.
We have devoted substantially all of our resources to development efforts relating to RP-G28, including conducting clinical trials of RP-G28, providing general and administrative support for these operations and protecting our intellectual property. We currently do not have any products approved for sale and we have not generated any revenue from product sales since our inception. From our inception through December 31, 2014, we have funded our operations primarily through the private placement of preferred stock, common stock and promissory notes.
We have incurred net losses in each year since our inception, including net losses of approximately $2.5 million and $2.1 million for the years ended December 31, 2014 and 2013, respectively. We had an accumulated deficit of approximately $17.9 million as of December 31, 2014. Substantially all our net losses resulted from costs incurred in connection with our research and development programs, stock-based compensation, and from general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:
•
complete the development of our lead product candidate, RP-G28, for the reduction of symptoms associated with lactose intolerance in patients;
•
seek to obtain regulatory approvals for RP-G28;
•
outsource the commercial manufacturing of RP-G28 for any indications for which we receive regulatory approval;
•
contract with third parties for the sales, marketing and distribution of RP-G28 for any indications for which we receive regulatory approval;
•
maintain, expand and protect our intellectual property portfolio;
•
continue our research and development efforts;
•
add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts; and
•
operate as a public company.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital in addition to the net proceeds of this offering prior to the commercialization of RP-G28 or any other product candidate. Until such time, if ever, as we can generate
substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.
Our financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Financial Overview
Revenue
We have not generated any revenue in the periods presented in our Results of Operations. Our ability to generate revenue in the future will depend almost entirely on our ability to successfully develop, obtain regulatory approval for and then successfully commercialize RP-G28 in the United States. In the event we choose to pursue a partnering arrangement to commercialize RP-G28 or other products outside the United States, we would expect to initiate additional research and development and clinical trial activities in the future.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for RP-G28. Our research and development expenses consist primarily of:
•
fees paid to consultants and CROs, including in connection with our nonclinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis;
•
costs related to acquiring and manufacturing clinical trial materials;
•
depreciation of leasehold improvements, laboratory equipment and computers;
•
costs related to compliance with regulatory requirements; and
•
overhead expenses for personnel in research and development functions.
From inception through December 31, 2014, we have incurred approximately $4.2 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we continue the development of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients and other indications, subject to the availability of additional funding.
The successful development of our clinical and preclinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
•
the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities;
•
future clinical trial results; and
•
the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct
clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.
RP-G28
The majority of our research and development resources are focused on the Phase 2b RP-G28 trials and our other planned clinical and nonclinical studies and other work needed to submit RP-G28 for the reduction of symptoms associated with lactose intolerance in patients for regulatory approval in the United States and Europe. We have incurred and expect to continue to incur expenses in connection with these efforts, including:
•
working with our CRO to prepare for launch of the Phase 2b trials; and
•
working with our third-party drug formulator to produce sufficient drug product for the Phase 2b programs and other contemplated trials.
Patent Costs
Patent costs consist primarily of professional fees for legal services to prosecute patents and maintain patent rights.
General and Administrative Expenses
General and administrative expenses include allocation of facilities costs, salaries, benefits, and stock-based compensation for employees, professional fees for directors, fees for independent contractors and accounting and legal services.
We expect that our general and administrative expenses will increase as we operate as a public company and due to the potential commercialization of RP-G28. We believe that these increases will likely include increased costs for director and officer liability insurance, and increased fees for outside consultants, lawyers and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.
Interest Income and Interest Expense
Interest income consists of interest earned on our cash. We expect our interest income to increase following the completion of this offering as we invest the net proceeds from this offering pending their use in our operations.
Interest expense pertains to interest accrued on our promissory notes.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 3 to our financial statements appearing elsewhere in this prospectus, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Fair Value of Financial Instruments
FASB ASC 820 —
Fair Value Measurements and Disclosures
, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. The estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
•
Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
•
Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
•
Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the balance sheet for cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, and the notes payable approximate the fair values due to the short-term nature of the instruments.
Research and Development Costs
We expense the cost of research and development as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical study costs, contracted services, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730,
Research and Development
.
The successful development of RP-G28 is uncertain. At this time, other than as discussed below, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of RP-G28 or the period, if any, in which material net cash inflows from the sale of RP-G28 may commence. This is due to the numerous risks and uncertainties associated with developing product candidates, including those described in “Risk Factors” in this prospectus. Development timelines, probability of success and development costs vary widely. As a result of these risks and uncertainties, we cannot currently estimate with any degree of certainty the amount of time or money that will be required to expend in the future on the research and development of RP-G28.
Accrued Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for
the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include fees due to service providers.
We base our expenses on our estimates of the services received and efforts expended pursuant to quotes and contracts with our service providers that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and could result in us reporting amounts that are too high or too low in any particular period.
Stock-based Compensation
We governed our share-based compensation by the 2009 Stock Plan and 2008 Stock Plan (collectively the “Plans”.) The Plans permit us to grant non-statutory stock options, incentive stock options and stock purchase rights to our employees, outside directors and consultants; however, incentive stock options may only be granted to our employees. As of December 31, 2014, the maximum aggregate number of shares of common stock that may be issued is 500,000 and 14,630,034 shares under the 2009 Stock Plan and 2008 Stock Plan, respectively, subject to adjustment due to the effect of any stock split, stock dividend, combination, recapitalization or similar transaction.
Options Issued to Directors and Employees as Compensation
We recognize compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is expensed on a straight-line basis over the vesting period of the respective award. Performance-based awards vest and are expensed over the performance period when the related performance goal is probable of being achieved.
From inception to 2013, we have issued an aggregate of 1,474,134 options to our executive officers and employees under our stock plans. Of these, 187,067 options were forfeited during 2013 and 1,287,067 options remain outstanding as of December 31, 2013. The exercise prices of these option grants, as determined by our Board of Directors, range from $0.11 to $0.18 per share, and a portion of these vest subject to certain performance conditions. Our management estimated that all of the performance conditions for the options granted to our executive officers would be met by September 25, 2015.
In 2014, we granted an aggregate of 11,631,197 non-qualified 10-year term options to purchase our common stock to our executive officers. As of December 31, 2014, 12,518,263 options remain outstanding. The exercise prices of these option grants, as determined by the Company’s Board of Directors, range from $0.82 to $1.85 per share. We have recognized an expense for these services within general and administrative expense in the accompanying Statements of Operations of approximately $695,000 and $6,000 for the years ended December 31, 2014 and 2013, respectively.
As of December 2014, there was approximately $4.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.9 years.
Options Issued to Non-Employees for Service Rendered
We account for stock-based compensation arrangements with non-employees using a fair value approach. The fair value of these options is measured using the Black-Scholes option-pricing model
reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected life, which is assumed to be the remaining contractual life of the option. The compensation costs of these arrangements are subject to re-measurement over the vesting terms as earned.
Since inception, we have issued options to purchase an aggregate of 762,000 shares to our consultants under the Plans. Of these, 490,937 options were forfeited or exercised, while 271,063 options remain outstanding as of December 31, 2014.
The exercise prices of the outstanding options, as determined by our Board of Directors, range from $0.10 to $0.16 per share. These outstanding options, with the exception of an option to purchase an aggregate of 52,000 shares granted to a consultant, vest 25% upon the first anniversary of the vesting commencement date with the remaining options vesting monthly in equal amounts over 36 months. In March 2011, we granted an option to a consultant to purchase an aggregate of 52,000 shares with an exercise price of $0.14 which vests 25% on the date of grant with the remaining options vesting monthly in equal amounts over 36 months. We recorded stock-based compensation expense for non-employees within research and development expenses in the accompanying Statements of Operations of approximately $13,000 and $8,400 for the years ended December 31, 2014, and 2013, respectively. We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.
Option Valuation
We calculate the fair value of stock-based compensation awards granted to employees and nonemployees using the Black-Scholes option-pricing method. If we determine that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for our stock options could change significantly. Higher volatility and longer expected lives would result in an increase to stock-based compensation expense to non-employees determined at the date of grant. Stock-based compensation expense to non-employees affects our selling, general and administrative expenses and research and development expenses.
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. The assumptions used in the Black-Scholes option-pricing method for the year ended December 31, 2014 is set forth below:
|
|
|
|
Year ended December 31, 2014
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Expected dividend yield
|
|
|
|
|
0.00
%
|
|
|
|
|
|
0.00
%
|
|
|
|
Expected stock-price volatility
|
|
|
|
|
51.45
%
|
|
|
|
|
|
64.24
%
|
|
|
|
Risk-free interest rate
|
|
|
|
|
0.88
%
|
|
|
|
|
|
3.04
%
|
|
|
|
Expected term of options
|
|
|
|
|
5
|
|
|
|
|
|
10
|
|
|
|
Stock price
|
|
|
|
$
|
0.16
|
|
|
|
|
$
|
0.82
|
|
|
•
Expected term.
The expected term represents the period that the stock-based awards are expected to be outstanding. Our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore we estimate the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.
•
Expected volatility.
As our common stock has never been publicly traded, the expected volatility is derived from the average historical volatilities of publicly traded companies within our industry that we consider to be comparable to our business over a period approximately equal to the expected term.
•
Risk-free interest rate.
The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
•
Expected dividend.
The expected dividend is assumed to be zero as we have never paid dividends and have no current plans to pay any dividends on our common stock.
In addition to the assumptions used in the Black-Scholes option-pricing model, we also estimate a forfeiture rate to calculate the stock-based compensation for our equity awards. We will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for our stock-based compensation calculations on a prospective basis.
Significant factors, assumptions and methodologies used in determining the estimated fair value of the Company’s common stock
We are also required to estimate the fair value of the common stock underlying our stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing model. Our Board of Directors, with the assistance of management, determined the fair value of our common stock on each grant date. Option grants are based on the estimated fair value of our common stock on the date of grant, which is determined by taking into account several factors, including the following:
•
the prices at which we sold our convertible preferred stock and the rights, preferences, and privileges of the convertible preferred stock relative to those of our common stock, including the liquidation preferences of the convertible preferred stock;
•
important developments in our operations;
•
our actual operating results and financial performance;
•
conditions in our industry and the economy in general;
•
stock price performance of comparable public companies;
•
the estimated likelihood of achieving a liquidity event, such as an IPO or an acquisition, given prevailing market conditions; and
•
the illiquidity of the common stock underlying stock options.
The table below presents the prices received from sales to third parties of our common stock and various classes of our preferred stock from inception to date:
|
|
Year
|
|
|
Share Class
|
|
|
Price per Share
|
|
|
|
2005
|
|
|
Common Stock
(a)
|
|
|
$0.25
|
|
|
|
2006
|
|
|
Series A-2 Preferred Stock
(a)
|
|
|
$0.40
|
|
|
|
2008 – 2009
|
|
|
Series A-3 Preferred Stock
|
|
|
$0.62
|
|
|
|
2010 – 2013
|
|
|
Series B Preferred Stock
|
|
|
$1.19
|
|
|
|
2014
|
|
|
Series C Preferred Stock
|
|
|
$1.30
|
|
(a)
After giving effect to the Company’s conversion from an LLC to a corporation
For options issued from inception to 2013, in determining the estimated fair value of our common stock, our Board of Directors, with the assistance of management, used the market approach to estimate the enterprise value of the Company in accordance with the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation (the “AICPA Guide”) for the three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010. The Market Approach is one of the three approaches (along with the Income Approach and Asset Approach) used to estimate enterprise and equity value. The market approach employs analysis using comparable companies in determining the value of the entity. Both public and private companies, if publicly available information exists, are considered in the market approach. Two information points commonly available — company valuation and transaction value — are used for their respective methodologies. There are a number of different methods within the Market Approach that may be used: the three main methods utilized are: the Guideline Pubic Companies Method; the Guideline Transactions Method; and the Backsolve Method.
Given the early stage of our company, the Backsolve Method was used to estimate the fair value of our securities. This method derives an implied market value of invested capital from a transaction involving a company’s own securities. The price of a company’s security that was involved in a recent arms-length transaction is used as a reference point in an allocation of value. We first raised additional capital through the sales of our LLC units. These units later converted into common shares and preferred shares upon our conversion to a corporation. Subsequent to our corporation conversion, we raised additional capital through the sales of our Series A-1, Series A-2, Series A-3, Series B, and Series C preferred shares at the price of $0.07, $0.40, $0.62, $1.19, and $1.30, respectively.
We valued LLC units and common stock (after converting to a corporation) from inception through 2009 by reference to our sales of units and/or common stock & preferred stock over the period. Beginning in 2010, we valued our common stock using the Backsolve Method. The Backsolve Method requires considering the rights and preferences of each class of equity and solving for the total market value of invested capital that is consistent with a recent transaction in our own securities, considering the rights and preferences of each class of equity. However, our management has decided that the liquidation preferences between our preferred shares and common shares are immaterial for a pre-revenue company.
Per the AICPA Guide, the Backsolve Method is generally the most reliable indicator of value of early-stage enterprises with no product revenue or cash flow, if relevant and reliable transactions have occurred in the company’s equity securities. This methodology is also prescribed by the AICPA when a valuation is conducted in close proximity to the date of a financing transaction, and when other methodologies are deemed less reliable.
The stage of development of our compound was reflected in our selection of the term and volatility estimates used in the analysis. The estimate of the term considers our existing cash runway and the time to the next potential financing or liquidity event, while the volatility estimate reflects the relative riskiness of our equity securities (or asset base) relative to the general stock market.
Our management estimated the implied market value of invested capital of our company by backsolving for the purchase price of our preferred shares for one common share through the option-pricing method. The premise of this method is that the transaction implied a market price for a share which in turn implied values for the other classes of equity based on relative claims on equity value, such as liquidation preferences and conversion rights. The application of the backsolve method considering our capital structure yielded a total market value of invested capital of approximately $15.5 million, $14.4 million, and $8.9 million, of which approximately $819,000, $870,000, and $670,000 were allocated to the total value of common stock as of our three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, respectively.
On the three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, after estimating the market value of invested capital, we allocated it to the various equity classes comprising our capitalization table. This process ultimately results in creating a final estimate of value for our underlying equity interests. While there are many different value allocation methods, these various methods can be grouped into three general categories as defined by the AICPA Guide, one of which is the Option-Pricing Method (OPM).
We used the OPM to allocate market value of invested capital to the various equity classes and debt comprising our capitalization structure. We chose the OPM over other acceptable methods due to the complex capital structure of our company, the uncertainty related to market conditions, and the lack of visibility on an imminent exit event. Under the OPM, each equity class is modeled as a call option with a distinct claim on the equity of our company. The option’s exercise price is based on our company’s total equity value available for each participating equity holder. The characteristics of each equity class determine the equity class’ claim on the total equity value. By constructing a series of options in which the exercise price is set at incremental levels of value, which correspond to the equity value necessary for each level of equity to participate, we determined the incremental option value of each series. When multiplied by the percentage of ownership of each equity class participating under that series, the result is the incremental value allocated to each class under that series.
The OPM relies on the Black-Scholes option-pricing model to value the call options on our invested capital. The following inputs were applied in the Black-Scholes calculations of the OPM:
|
|
|
|
Valuation Dates
|
|
|
|
|
|
November 7, 2013
|
|
|
July 31, 2012
|
|
|
December 31, 2010
|
|
|
Risk-free rate
|
|
|
|
|
0.55
%
|
|
|
|
|
|
0.57
%
|
|
|
|
|
|
2.01
%
|
|
|
|
Maturity (years)
|
|
|
|
|
3.00
|
|
|
|
|
|
4.00
|
|
|
|
|
|
5.00
|
|
|
|
Volatility
|
|
|
|
|
58.00
%
|
|
|
|
|
|
61.00
%
|
|
|
|
|
|
61.00
%
|
|
|
Discounts ranging from 35.8% to 40% were applied for lack of control and lack of marketability for the common stock. The calculation resulted in a fair value for the common stock of $0.163, $0.167, and $0.144 per share as of our three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, respectively.
For options issued in 2014, given our distinct possible exit scenarios of an initial public offering, we used the probability weighted expected return method (PWERM) to estimate the fair value of our common equity. Under this method, an analysis of future values of a company is performed for several likely liquidity scenarios. The value of the common stock is determined for each scenario at the time of each future liquidity event and discounted back to the present using a risk-adjusted discount rate. The present values of the common stock under each scenario are then weighted based on the probability of each scenario occurring to determine the value for the common stock. Our management determined the probability weighting of potential liquidity events to be 45% for an initial public offering and 55% for other scenarios, which represents all other likely outcomes for our company.
Management estimated the implied market value of invested capital of our company by backsolving for the purchase price of our preferred shares for one common share through the use of OPM. The application of the backsolve method considering our capital structure yielded a total market value of invested capital of approximately $25.2 million, of which approximately $1.4 million was allocated to the total value of common stock as of our valuation date of October 31, 2014.
Given the lack of marketability for the common stock, we applied a discount of 21.4% for using the average strike put option approach. This resulted in a probability weighted common share value, after adjustment, of $0.82 per share as of valuation date of October 31, 2014.
Stock-based Compensation Summary Tables
Information regarding our stock option grants to our employees and non-employees, along with the estimated fair value per share of the underlying common stock, for stock options granted since 2005 is summarized as follows:
|
Grant Date
|
|
|
Number of Common
Shares Underlying
Options Granted
|
|
|
Exercise Price
per Common
Share
|
|
|
Estimated Fair Value
per Share of
Common Stock
|
|
|
Intrinsic Value
Option
|
|
|
2005
|
|
|
|
|
417,000
|
|
|
|
$0.01
|
|
|
|
$
|
0.25
|
|
|
|
$0.24
|
|
|
2009
|
|
|
|
|
433,000
|
|
|
|
$0.10 – $0.11
|
|
|
|
$
|
0.62
|
|
|
|
$0.51 – $0.52
|
|
|
2011
|
|
|
|
|
242,000
|
|
|
|
$0.14
|
|
|
|
$
|
0.14
|
|
|
|
$0.00
|
|
|
2012
|
|
|
|
|
429,134
|
|
|
|
$0.16
|
|
|
|
$
|
0.16
|
|
|
|
$0.00
|
|
|
2013
|
|
|
|
|
715,000
|
|
|
|
$0.16 – $0.18
|
|
|
|
$
|
0.16
|
|
|
|
$0.00
|
|
|
2014
|
|
|
|
|
11,631,197
|
|
|
|
$0.82 – $1.85
|
|
|
|
$
|
0.82
|
|
|
|
$0.00
|
|
The following represents a summary of the options granted to employees and non-employees outstanding at December 31, 2014 and changes during the period then ended:
|
|
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding at December 31, 2013
|
|
|
|
|
1,621,567
|
|
|
|
|
$
|
0.151
|
|
|
|
Granted
|
|
|
|
|
11,631,197
|
|
|
|
|
|
1.080
|
|
|
|
Exercised/Expired/Forfeited
|
|
|
|
|
(463,437
)
|
|
|
|
|
|
(0.124
)
|
|
|
|
Outstanding at December 31, 2014
|
|
|
|
|
12,789,327
|
|
|
|
|
$
|
0.997
|
|
|
|
Exercisable at December 31, 2014
|
|
|
|
|
1,159,997
|
|
|
|
|
$
|
0.567
|
|
|
|
Expected to be vested
|
|
|
|
|
11,629,330
|
|
|
|
|
$
|
1.040
|
|
|
|
|
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the Securities Act), for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
Results of Operations
Comparison of the Year Ended December 31, 2014 and the Year Ended December 31, 2013
The following table summarizes our results of operations for the years ended December 31, 2014 and 2013, together with the changes in those items in dollars and as a percentage:
|
|
|
|
For the Year Ended December 31,
|
|
|
Dollar
Change
|
|
|
Percentage
Change
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
|
|
Research and development
|
|
|
|
$
|
113,931
|
|
|
|
|
$
|
461,551
|
|
|
|
|
$
|
(347,620
)
|
|
|
|
|
|
(75
)%
|
|
|
|
Patent costs
|
|
|
|
|
197,731
|
|
|
|
|
|
292,358
|
|
|
|
|
|
(94,627
)
|
|
|
|
|
|
(32
)%
|
|
|
|
General and administrative
|
|
|
|
|
1,969,960
|
|
|
|
|
|
1,356,888
|
|
|
|
|
|
613,072
|
|
|
|
|
|
45
%
|
|
|
|
Total operating expenses
|
|
|
|
|
2,281,622
|
|
|
|
|
|
2,110,797
|
|
|
|
|
|
170,825
|
|
|
|
|
|
8
%
|
|
|
|
Loss from operations
|
|
|
|
|
(2,281,622
)
|
|
|
|
|
|
(2,110,797
)
|
|
|
|
|
|
(170,825
)
|
|
|
|
|
|
8
%
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
(525
)
|
|
|
|
|
|
(1,677
)
|
|
|
|
|
|
1,152
|
|
|
|
|
|
(69
)%
|
|
|
|
Interest expense
|
|
|
|
|
213,516
|
|
|
|
|
|
6,076
|
|
|
|
|
|
207,440
|
|
|
|
|
|
3,414
%
|
|
|
|
Other income
|
|
|
|
|
(21,148
)
|
|
|
|
|
|
(19,365
)
|
|
|
|
|
|
(1,783
)
|
|
|
|
|
|
9
%
|
|
|
|
Total other expense (income)
|
|
|
|
|
191,843
|
|
|
|
|
|
(14,966
)
|
|
|
|
|
|
206,809
|
|
|
|
|
|
(1,382
)%
|
|
|
|
Net Loss
|
|
|
|
$
|
(2,473,465
)
|
|
|
|
|
$
|
(2,095,831
)
|
|
|
|
|
$
|
(377,634
)
|
|
|
|
|
|
18
%
|
|
|
|
|
Research and Development Expenses
Research and development expenses were approximately $114,000 and $462,000 for the years ended December 31, 2014 and 2013, respectively. The decrease in research and development expenses of approximately $348,000, or 75%, primarily reflects our preparation work for our Type C meeting with the FDA in 2013, including the assistance of clinical, medical and biostatistician consultants in data analyses. This work was largely completed in 2013, and therefore the observed decrease in research and development expense reflects the discontinuation of their services.
Patent Costs
Patent costs were approximately in $198,000 and $292,000 for the years ended December 31, 2014 and 2013, respectively, representing a decrease of $95,000, or 32%. This decrease was primarily due to Patent Cooperation Treaty, or PCT, filings, which took place in 2013. We incurred no significant PCT costs in 2014.
General and Administrative Expenses
General and administrative expenses were approximately $2 million and $1.4 million
for the years ended December 31, 2014 and 2013, respectively. The increase in general and administrative expenses is $613,000 or 45%. This increase in general and administrative expenses was primarily due to the salary for our new Chief Executive Officer starting in October 2014, and the increase in stock based compensation related to the options granted to our executives and employees in 2014, partially offset by a reduction in our staffing of independent contractors and public relations effort in 2014.
Other Income (Expense)
Interest expense, net of interest income was approximately
$213,000
and $4,000
for the years ended December 31, 2014 and 2013, respectively. The increase of approximately $209,000 in net interest expense was primarily a result of a non-cash charge of approximately $184,000 related to the conversion of convertible promissory notes in December 2014 and interest costs associated with convertible promissory notes used to finance our operations in 2014.
Liquidity and Capital Resources
Sources of Liquidity
We have incurred losses and cumulative negative cash flows from operations since our inception in September 2008 and, as of December 31, 2014, we had an accumulated deficit of approximately $17.9 million. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may seek to obtain through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Since our inception through December 31, 2014, we have funded our operations primarily through the sale of common shares, preferred shares and promissory notes.
Stock Transactions and Preferred Stock Subject to Redemption
As of December 31, 2014, we are authorized to issue 50,000,000 shares of common stock with a par value of $0.001 per share and 7,200,000 shares, 1,687,500 shares, 4,220,464 shares, 7,658,182 shares, and 4,500,000 shares of Series A-1, Series A-2, Series A-3, Series B, and Series C preferred stock, respectively, with a par value of $0.001 per share. As of December 31, 2014, we have a total of 3,327,500 shares of common stock issued and outstanding, and 7,200,000, 1,687,500, 4,220,464, 6,188,188, and 2,991,016 shares of Series A-1, Series A-2, Series A-3, Series B, and Series C preferred stock issued and outstanding, respectively. The holders of outstanding shares of preferred stock will receive dividends, when, as and if declared by our Board of Directors. The annual dividend rate is $0.00556 per share for the Series A-1 preferred stock, $0.032 per share for the Series A-2 preferred stock, $0.04957 per share for the Series A-3 preferred stock, $0.09524 per share for the Series B preferred stock, and $0.104 for Series C preferred stock (all subject to adjustment). The right to receive dividends on shares of Series B preferred stock is cumulative and the dividends accrue to holders of Series B preferred stock whether or not dividends are declared or paid in a calendar year. Undeclared dividends in arrears for the Series B preferred stock was approximately $1.7 million and $1.1 million as of December 31, 2014 and 2013, respectively. The right to receive dividends on shares of Series A and Series C preferred stock is not cumulative and no right to such dividends shall accrue to holders of Series A or Series C preferred stock.
Each share of our preferred stock will be automatically converted into fully-paid, non-assessable shares of our common stock on a one-for-one basis, subject to adjustment, (i) immediately prior to the closing of a firm commitment underwritten initial public offering provided that the aggregate gross proceeds to the Corporation are greater than $10,000,000, or a Qualified Public Offering, or (ii) upon the written request for such conversion from the holders of a majority of outstanding preferred stocks.
In the event of any liquidation, dissolution or winding up of our company, either voluntary or involuntary, Series B and Series C preferred stockholders receive an amount per share equal to the sum of the original purchase price of $1.19 plus all cumulative but unpaid dividends for Series B, and $1.30 for Series C. If upon the liquidation, the available assets are insufficient to permit payments to Series B and Series C holders, the entire assets legally available will be distributed in a pro rata basis among the holders in proportion to the full amounts they would otherwise be entitled to receive. Upon the completion of the distribution to the holders of the Series B and Series C preferred stock, the holders of the Series A preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of all other capital stock by reason of their ownership of such stock, an amount per share equal to the sum of the original issue price per share of $0.07, $0.4, and $0.62 for Series A-1, Series A-2, and Series A-3 preferred stock, respectively, plus any accrued but unpaid dividends on the preferred stock. Any remaining assets are distributed pro rata among the preferred and common shareholders.
At any time after five years following the date of the initial issuance of the Series A-3, Series B, or Series C preferred stock, as applicable, and at the option of the holders of a majority of the then outstanding shares of Series A-3, Series B, and Series C preferred stock, voting together as a single class, we
shall redeem any outstanding shares that have not been converted by paying cash in an amount per share equal to the liquidation preference of $0.62 and $1.30 for the Series A-3 and Series C preferred stock, respectively, and $1.19 per share, plus any accrued but unpaid dividends, for the Series B preferred stock. Given the holders’ redemption option, the Series A-3, Series B, and Series C preferred stock is classified as preferred stock subject to redemption in the accompanying Balance Sheets.
In November 2013, we entered into a Series B Preferred Stock Purchase Agreement with certain investors raising approximately $500,000, selling 419,995 shares of Series B preferred stock. Also in November 2013, we converted a total of approximately $135,000 in convertible notes, including accrued interest of approximately $9,000, into 103,235 shares of Series B preferred stock.
In December 2014, we issued an aggregate of 2,369,228 shares of Series C preferred stock, and warrants to purchase an aggregate of 2,369,228 shares of our common stock (the “Warrants”), for an aggregate purchase price of approximately $3.1 million (the “Series C Financing”). Each Warrant has a term of seven (7) years and provides for the holder to purchase one share of our common stock at a purchase price of $1.30 per share of common stock.
In connection with the Series C Financing, all of the outstanding notes payable were converted into shares of Series C preferred stock and Warrants as follow:
•
$535,000 unpaid principal plus accrued interest of $18,342 on convertible notes converted into 567,529 shares of Series C preferred stock and 567,529 Warrants; and
•
$70,000 unpaid principal plus accrued interest of $537 on note payable extinguished and converted into 54,259 shares of Series C preferred stock and 54,259 Warrants.
Prepaid Forward Sale of Preferred Stock
On November 30, 2010, we entered into a Research and Development Agreement & License, or the R&D Agreement, with two commonly controlled entities, Kolu Pohaku Technologies, LLC, or KPT, and Kolu Pohaku Management, LLC, or KPM. The agreement was subsequently amended on July 6, 2011, September 30, 2011, February 6, 2012 and November 4, 2013 to increase the funding to be received by the Company thereunder and to add royalty payments made by us for years subsequent to the original agreement. In connection with the R&D Agreement, we also granted the KPM Option, pursuant to the terms and conditions of a Put and Call Option Agreement, or the KPM Option Agreement, to KPM.
Research and Development Agreement and License.
The R&D Agreement between us and KPM and KPT calls for KPT to make a series of payments to us totaling $1,750,000 in exchange for us performing certain research and development activities in Hawaii for the benefit of KPT (referred to herein as the KP Research). The KP Research consists of the initial phase of research, including the conduct of Phase II clinical trials in Hawaii for RP-G28. Pursuant to the terms of the R&D Agreement, we maintain ownership of the results of our ongoing research related to RP-G28, but KPT maintains ownership of the results of the KP Research. Inventions, developments and improvements arising out of the KP Research are owned by KPT. We bear any costs involved in obtaining patents for any inventions, developments or improvements resulting from the KP Research. In exchange for the irrevocable, perpetual, exclusive, worldwide right and license to the results of the KP Research, as they are generated under the R&D Agreement, we agreed to pay a quarterly royalty payment to KPT of $32,000 commencing March 31, 2015 and continuing through December 31, 2035.
Put and Call Option Agreement.
Pursuant to the terms of the KP Option Agreement, we may, at any time after December 31, 2014, put 1,469,994 shares of our Series B preferred stock to KPM. KPM also has the option, at any time after December 31, 2014, to call this same number of shares of Series B preferred stock from us. The number of shares is determined by dividing the $1,750,000 of payments made by KPT to us under the R&D Agreement by the Series B original issue price of $1.19. Irrespective of whether the above exercise date has passed, the KPM Option automatically exercises immediately prior to any of the following events: (i) a qualified public offering by us, (ii) our liquidation or winding up, (iii) the licensure of our RP-G28 technology, or (iv) any redemption or conversion of our outstanding Series B preferred stock. Exercise of the KPM Option under any scenario will result in full satisfaction of our obligation to make royalty payments to KPT under the R&D Agreement and KPT’s right, title and interest in the research
conducted pursuant to the R&D Agreement will at such time become our property. In the event of a breach of the R&D Agreement by us, KPM and KPT’s sole remedy is to either exercise the KPM Option, even if before December 31, 2014, or institute an action for money damages in an amount not to exceed the payments under the R&D Agreement.
Loans
In November 2013, we converted $37,500 of accounts payable into a note payable resulting from a compromise settlement with a vendor to complete satisfaction of all rights, claims, causes of action, indebtedness, and assertions that the vendor may have against us. The note payable has a term of one year and requires payments of $3,000 per month. The note payable has no stated interest rate and, due to the short-term nature of the note, we did not impute interest on the note. The note was fully paid in October 2014.
In 2014, we issued a combination of convertible notes payable and a note payable for a total principal balance of $605,000, or the 2014 Notes, to two investors and converted all of these outstanding notes, plus accrued interest, into Series C preferred stock and warrants to purchase our common stock. These notes were convertible upon a qualified equity financing, pursuant to which we sold, with the principal purpose of raising capital, a new class of preferred stock with an aggregate sales price of not less than $3,000,000, including the principal and accrued but unpaid interest of any notes which are converted into the preferred securities, or a Qualified Equity Financing, or upon a change of control.
Details of the 2014 Notes are as follows:
(a)
In May and September 2014, we issued a total of $455,000 of subordinated convertible promissory notes. These notes have a term of 12 months and bear interest at a rate of 8% per annum until paid in full. These notes are convertible upon a Qualified Equity Financing or upon a change of control at a price per share equal to seventy-five percent (75%) of the price per share paid by the investors (other than the 2014 Note holders) participating in the Qualified Equity Financing. We evaluated the change of control put embedded in these notes, which provides for cash settlement of these notes at two (2) times the principal amount upon a change of control at issuance date. The proceeds received upon issuing these notes was first allocated to the fair value of the embedded put with the remainder to the debt host instrument, resulting in a discount of approximately $21,000 to the face amount of the notes. The discount is amortized to interest expense over the term of the debt. We amortized approximately $10,000 to interest expense in the year ended December 31, 2014. Additionally, we recognized a gain of approximately $21,000 in the year ended December 31, 2014 due to the reduction in fair value of the put resulted from the decreased probability of a change in control occurring as the notes approached maturity and ultimate conversion.
(b)
In October 2014, we issued an $80,000 subordinated convertible promissory note. These notes have a term of 12 months and bear interest at a rate of 8% per annum until paid in full. The terms of this note provided an automatic conversion upon a Qualified Equity Financing at a price per share equal to seventy-five percent (75%) of the price per share paid by the investors (other than the 2014 Note holders) participating in the Qualified Equity Financing.
(c)
In addition, we issued a $70,000 principal amount unsecured promissory note on October 9, 2014. This note bears interest at a rate of 5% per annum until paid in full. All principal and accrued interest under this note must be paid upon demand of the holder at any time after one year of the date of the note.
All of our outstanding debt was converted or exchanged for Series C preferred stock and warrants to purchase our shares of common stock in December 2014.
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below:
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Net cash provided by (used in):
|
|
|
|
|
Operating activities
|
|
|
|
$
|
(1,157,385
)
|
|
|
|
|
$
|
(1,956,914
)
|
|
|
|
Investing activities
|
|
|
|
|
(1,166
)
|
|
|
|
|
|
(8,692
)
|
|
|
|
Financing activities
|
|
|
|
|
3,457,573
|
|
|
|
|
|
643,995
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
$
|
2,299,022
|
|
|
|
|
$
|
(1,321,611
)
|
|
|
|
|
Operating Activities
Net cash used in operating activities of approximately $1.2 million during the year ended December 31, 2014 was primarily a result of our net loss of approximately $2.5 million offset by stock based compensation of approximately $707,000 and a non-cash charge of approximately $184,000 to interest expense related to the conversion of convertible promissory notes and an increase of approximately $249,000 in accounts payable and an increase in accrued expenses of approximately $160,000.
Net cash used in operating activities of approximately $2.0 million during the year ended December 31, 2013 was primarily a result of our net loss of approximately $2.1 million, offset by an increase of approximately $120,000 in accounts payable.
Investing Activities
Net cash used in investing activities of approximately $1,000 during the year ended December 31, 2014 primarily reflected our use of cash to purchase equipment, offset partially by our proceeds from the disposal of property and equipment. Net cash used in investing activities during the year ended December 31, 2013 of approximately $9,000 primarily reflected our use of cash to purchase equipment.
Financing Activities
Net cash provided by financing activities of approximately $3.5 million in the year ended December 31, 2014 mainly resulted from approximately $3.0 million in net proceeds received on sales of preferred stock subject to redemption and warrants to purchase common stock and approximately $605,000 in net proceeds from the sale of convertible notes offset partially by deferred offering costs of approximately $143,000.
Net cash provided by financing activities in the year ended December 31, 2013 of approximately $644,000 resulted from net proceeds from the issuance of shares of Series B preferred stock and issuance of a prepaid forward sale contract on shares of Series B preferred stock.
Future Funding Requirements
To date, we have not generated any revenue. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize RP-G28 or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. Upon the closing of this offering, we expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.
Based upon our current operating plan, we believe that the net proceeds from this offering, together with our existing cash, cash equivalents and short-term investments, will enable us to fund our operating expenses and capital expenditure requirements through 2018. We intend to devote the net proceeds from
this offering to fund the continued clinical development of RP-G28 for the reduction of symptoms associated with lactose intolerance, including our anticipated Phase 2b trial; to fund expenses associated with the manufacture and product development of RP-G28; to explore potential orphan indications; and for general corporate purposes, general and administrative expenses, capital expenditures, working capital and prosecution and maintenance of our intellectual property. See “Use of Proceeds” for a more detailed discussion. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates.
Our future capital requirements will depend on many factors, including:
•
the progress, costs, results of and timing of our Phase 2b and Phase 3 RP-G28 trials for the reduction of symptoms associated with lactose intolerance in patients;
•
the willingness of the EMA or other regulatory agencies outside the United States to accept our Phase 2b and Phase 3 RP-G28 trials, as well as our other completed and planned clinical and nonclinical studies and other work, as the basis for review and approval of RP-G28 in the European Union for the reduction of symptoms associated with lactose intolerance in patients;
•
the outcome, costs and timing of seeking and obtaining FDA, EMA and any other regulatory approvals;
•
the number and characteristics of product candidates that we pursue, including our product candidates in preclinical development;
•
the ability of our product candidates to progress through clinical development successfully;
•
our need to expand our research and development activities;
•
the costs associated with securing and establishing commercialization and manufacturing capabilities;
•
market acceptance of our product candidates;
•
the costs of acquiring, licensing or investing in businesses, products, product candidates and technologies;
•
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
•
our need and ability to hire additional management and scientific and medical personnel;
•
the effect of competing technological and market developments;
•
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
•
the economic and other terms, timing of and success of our existing licensing arrangements and any collaboration, licensing or other arrangements into which we may enter in the future; and
•
the costs of operating as a public company.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third-party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.
Lease Agreement
We lease office and storage space for our headquarters in California. Starting September 1, 2013, we ended our previous lease agreement and executed a new office and storage lease agreement pursuant to a two-year agreement ending September 30, 2015, which calls for a minimum monthly rent of approximately $5,000 and an annual increase of 3%, which we recognize on a straight line basis.
Going Concern
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. Our independent registered public accounting firm has issued a report that included an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. We had net losses of approximately $2.5 million and $2.1 million for the years ended December 31, 2014 and 2013, respectively. We had net cash used in operating activities of approximately $1.2 million and $2 million for the years ended December 31, 2014 and 2013, respectively. These matters, among others, raise substantial doubt about our ability to continue as a going concern.
Since inception, our operations have been primarily funded through the sale of common shares, preferred shares and promissory notes. Management does not anticipate that our existing working capital alone will be sufficient to fund its operations through the successful development and regulatory approvals for RP-G28 and other product candidates. As a result, we will need to raise additional capital to fund our operations and continue to conduct activities to support the development and commercialization of our products. In December 2014, we completed our Series C financing which raised approximately $3.1 million to assist us with our operating capital requirements.
Management cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If we are not able to raise additional capital when required or on acceptable terms, we may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize.
The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Net Operating Losses
As of December 31, 2014, we had NOLs for Federal and state income tax purposes totaling approximately $9.7 million available to reduce future income which, if not utilized, will begin to expire in the year 2028. Our ability to utilize our NOLs may be limited under Section 382 of the Internal Revenue Code. The limitations apply if an ownership change, as defined by Section 382, occurs.
Generally, an ownership change occurs when certain shareholders increase their aggregate ownership by more than 50 percentage points over their lowest ownership percentage in a testing period (typically three years). Although we have not undergone a Section 382 analysis, it is possible that the utilization of the NOLs, could be substantially limited. Additionally, U.S. tax laws limit the time during which these
carryforwards may be utilized against future taxes. As a result, we may not be able to take full advantage of these carryforwards for federal and state tax purposes. Future changes in stock ownership may also trigger an ownership change and, consequently, a Section 382 limitation.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under Securities and Exchange Commission rules.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation.
This ASU removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the ASU eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of operations, cash flows, and stockholders’ equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. In addition, ASU 2014-10 requires an entity that has not commenced principal operations to provide disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to adopt this ASU and its adoption resulted in the removal of previously required development stage disclosures. Adoption of this ASU enabled the Company to eliminate the cumulative statements of operations and statements of cash flows information, which did not impact the Company’s financial position, operations, or cash flows.
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements — Going Concern (Subtopic 205-40) — Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern
, which provides guidance regarding management’s responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period, management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Management is currently evaluating the new guidance and has not determined the impact this standard may have on the Company’s financial statements.
Basic and Diluted Net Loss Attributable to Common Stockholders per Common Share
Diluted net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period using the treasury stock method or the two-class method, whichever is more dilutive. The potentially dilutive stock options issued under the 2008 Stock plan and 2009 Stock Plan and the Series B preferred stock issuable under the KPM Option were not considered in the computation of diluted net loss per share because they would be anti-dilutive.
BUSINESS
Our Business
Ritter Pharmaceuticals, Inc. develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases. We are advancing human gut health research by exploring the metabolic capacity of the gut microbiota and translating the functionality of prebiotic-based therapeutics into applications intended to have a meaningful impact on a patient’s health.
Our first novel microbiome modulator, RP-G28, an orally administered, high purity galacto-oligosaccharide, is currently under development for the reduction of symptoms associated with lactose intolerance. RP-G28 is designed to stimulate the growth of lactose-metabolizing bacteria in the colon, thereby effectively adapting the gut microbiome to assist in digesting the lactose that reaches the large intestine. RP-G28 has the potential to become the first FDA-approved drug for the reduction of symptoms associated with lactose intolerance. RP-G28 has been studied in a Phase 2a clinical trial and is a first-in-class compound.
The Gut Microbiome
The human gut is a relatively under-explored ecosystem but provides a great opportunity for using dietary intervention strategies to reduce the impact of gastrointestinal disease. The human body carries about 100 trillion microorganisms in the intestines, which is 10 times greater than the number of cells in the human body. This microbial population is responsible for a number of beneficial activities such as fermentation, strengthening the immune system, preventing growth of pathogenic bacteria, providing nutrients, and providing hormones. Recent major initiatives such as the Human Microbiome Project (HMP) by the National Institutes of Health have further validated the significance of the microbial population that exists in our bodies. Publications on the gut microbiome have increased from less than 50 papers annually in 2004 to more than 1,300 today
[PubMed Search “Gut Microbiome” (2013)]
. The increasing knowledge of how these microbial populations impact human health provides opportunities for novel therapies to treat an assortment of diseases such as neurological disease, cardiovascular disease, obesity, irritable bowel syndrome, inflammatory bowel disease, colon cancer, allergies, autism and depression.
Platform Approach
Our platform is based on selectively colonizing microbiota (increasing beneficial bacteria) in the colon, and thus changing the colon’s composition of microbiota. The process has been shown to stimulate the growth of endogenous bifidobacteria, which after a short feeding period become predominant in the colon
[Gibson. Dietary Modulation of the Human Colonie Microbiota: Introducing the Concept of Prebiotics. J. Nutr. 125: 1401-1412, 1995]
. The result is believed to reduce inflammation and improve digestion, thereby potentially reducing digestive symptoms.
RP-G28 selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without increasing the growth of harmful bacteria, such as Escherichia coli, or E. coli. Increased colonization of lactose-metabolizing colonic microbiota is associated with increased lactase activity, thereby increasing the fermentation of lactose into galactose, glucose and short chain fatty acids. We believe this process could reduce lactose-derived gas production and thereby mitigate the symptoms of lactose intolerance.
Lactose Intolerance
Lactose intolerance is a widespread condition affecting over one billion people worldwide and over 40 million people in the United States (or 15% of the U.S. population), with an estimated nine million of those individuals demonstrating moderate to severe symptoms
[NIH Consensus Statement, LIH, Vol. 27, #2 (February 2010); Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” p. 4 and 7 (June 2012)]
.
Current annual spending on over-the-counter lactose intolerance aids in the United States has been estimated at approximately $2.45 billion
[Zpryme Research & Consulting, “The Digestive Health Prescription Drug Market,” (May 2009)].
However, these options are limited and there is no long-term treatment available.
Lactose intolerance develops in lactose maldigesters when consuming too much lactose or when lactose is added to a previously low-lactose diet. People with lactose maldigestion have a low activity level of lactase, the enzyme responsible for breaking down human lactose, located in the brush border membrane of the small intestine. Lactose intolerance is characterized by one or more of the cardinal symptoms; including abdominal pain/cramps, bloating, gas, and diarrhea following the ingestion of lactose or lactose-containing foods.
In lactose maldigesters, unhydrolyzed lactose passes into the large intestine, where it is fermented by the indigenous microflora into gases and short chain fatty acids. The excessive gas production and the osmotic effects of excessive undigested lactose cause the symptoms of lactose intolerance
[Jiang T, Mastapha A, Savaiano DA, Improvement of lactose digestion in humans by ingestion of unfermented milk containing Biofidobacterium longum, J Dairy Sci. 1996; 79:750-757]
. Symptoms begin about 30 minutes to two hours after eating or drinking foods containing lactose. The severity of symptoms depends on many factors, including the amount of lactose a person can tolerate and a person’s age, ethnicity, and digestion rate
[Lomer MC, Parkes GC, Sanderson JD, Review article: lactose intolerance in clinical practice — myths and realities, Aliment Pharmacol Ther. 2008; 27(2):93-103; National Digestive Diseases Information Clearinghouse (NDDIC), Lactose intolerance, http://digestive.niddk.nih.gov/ddiseases/pubs/
lactoseintolerance/]
. The symptoms of lactose intolerance are caused by gases and toxins produced by anaerobic bacteria in the large intestine. The problem of lactose intolerance has been exacerbated because many foods and drinks contain traces of lactose without lactose being clearly stated on the product’s label
[Jiang T, Mastapha A, Savaiano DA, Improvement of lactose digestion in humans by ingestion of unfermented milk containing Biofidobacterium longum, J Dairy Sci. 1996; 79:750-757]
. According to the American Academy of Pediatrics Committee on Nutrition (2006), “the symptoms of lactose intolerance can lead to significant discomfort, disruption of the quality of life, and loss of school attendance, leisure and sports activities, and work time, all at a cost to individuals, families and society.”
Diagnosis
Lactose intolerance is often diagnosed by evaluating an individual’s clinical history, which reveals a relationship between lactose ingestion and onset of symptoms. Hydrogen breath tests may also be utilized to diagnose lactose malabsorption and a milk challenge may be used to differentiate between lactose malabsorption and lactose intolerance. Further tests can be conducted to rule out other digestive diseases or conditions, including: stool examination to document the presence of a parasite, blood tests to determine the presence of celiac disease, and intestinal biopsies to determine mucosal problems leading to malabsorption, such as inflammatory bowel disease or ulcerative colitis.
Health Consequences
Substantial evidence indicates that lactose intolerance is a major factor in limiting calcium intake in the diet of individuals who are lactose intolerant. These individuals avoid milk and dairy products, resulting in an inadequate intake of calcium and significant nutritional and health risks
[Alaimo K., McDowell M.A., Briefel R.R., et al., Dietary intake of vitamins, minerals, and fiber of persons ages 2 months and over in the United States: Third National Health and Nutrition Examination Survey, Phase 1, 1988-91, Adv. Data, 1994;(258):1-28; and Kranz S., Lin P.J., Wagstaff D.A., Children’s dairy intake in the United States: too little, too fat?, J Pediatr. 2007; 151(6):642-6.]
Dairy foods account for 73% of the calcium available in the U.S. food supply and 51% of the total intake
[Gerrior S, Bente L., Nutrient content of the U.S. food supply, 1909-94, Washington DC: U.S. Department of Agriculture, Center for Nutrition Policy and Promotion; 1997, Home Economics Research Report No. 53; and Weinberg L.G., Berber L.A., Groves J.E., Nutrient contributions of dairy foods in the United States, Continuing Survey of Food Intakes by Individuals, 1994-1996, 1998., J Am Diet Assoc., 2004; 104(6):895-902.]
Research shows that lactose intolerant individuals have a higher prevalence and risk for osteoporosis, hypertension, decreased bone mineral density and several cancers, including colon and breast cancer from the lack of milk consumption
[McCarron D.A., Heaney, R.P., Estimated healthcare savings associated with adequate dairy food intake, Am J Hypertens. 2004; 17 (1):88-97; Szilagyi A, Nathwani U, Vinokuroff C.,
et al., The effect of lactose maldigestion on the relationship between dairy food intake and colorectal cancer: a systematic review, Nutr Cancer. 2006; 55(2):141-150; and Suarez F.L., Adshead J., Furne J.K. and Levitt M.D., Amer. J Clin. Nutrition. 1998; 68:1118-22].
Decreased Calcium Intake Increases the Risk for Hypertension
Over 30 published reports show that chronic calcium depletion may lead to increased arterial blood pressure. Many additional papers have corroborated this relationship between hypertension and a low calcium intake
[Millen BE, Quatromoni PA, Nam BH, et al. Framingham Nutrition Studies. Dietary Patterns, Smoking, and Subclinical Heart Disease in Women: Opportunities for Primary Prevention from the Framingham Nutrition Studies. J Amer Dietetic Assoc. 2004; 104:208-214]
.
A growing body of evidence indicates that a nutritionally sound diet rich in fruits, vegetables and a generous component of low-fat dairy foods, or DASH diet, is optimal for reducing the risk of hypertension
[Conlin, P. R., Chow, D., Miller, E. R., 3rd, Svetkey, L. P., Lin, P. H., Harsha, D. W., et al. (2000), The effect of dietary patterns on blood pressure control in hypertensive patients: results from the Dietary Approaches to Stop Hypertension (DASH) trial. Am J Hypertens, 13(9), 949-955]
. Several recent reports have confirmed this finding in middle-aged and elderly women
[Wang, L, Manson, J, Buring, J, Lee, I-M, Sesso, D. Dietary Intake of Dairy Products, Calcium, and Vitamin D and the Risk of Hypertension in Middle-Aged and Older Women Hypertension 2008; 51:1073]
. Further, it appears that the DASH diet with generous low-fat dairy is associated with low prevalence of metabolic syndrome. The levels of dairy foods (three-four servings per day) required to achieve these effects are well above current U.S. averages and even further above that of lactose intolerant individuals who are avoiding dairy due to symptoms
[Lovelace, H.Y. and Barr, S.I., Diagnosis, symptoms, and calcium intakes of individuals with self-reported lactose intolerance, Journal of the American College of Nutrition, 24(1), 51-57, 2005; Carroccio, A., Montalto, G., et al., Lactose intolerance and self-reported milk intolerance: relationship with lactose maldigestion and nutrient intake, Journal of the American College of Nutrition, 17, 631-636, 1998; and Mainguet, P., Faille, I., et al., Lactose intolerance, calcium intake and osteopenia, Lancet, 338, 1156-1157, 1991.
Decreased Calcium Intake Increases the Risk for Colon and Breast Cancers
A national symposium as long ago as 1993 reported that there was a relationship between dietary calcium and both colon and breast cancer. Clearly, several other factors are involved, and the role of calcium has not yet been fully elucidated from the others. Nonetheless, there is evidence of a relationship
[Barger-Lux, M.J. and Heaney, R.P., The role of calcium intake in preventing bone fragility, hypertension and certain cancers, Journal of Nutrition, 124, 1406S-1411S, 1994]
.
Our History
We were formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC. Our first prototype, Lactagen
™
, was an alternative lactose intolerance treatment method. In 2004, clinical testing was conducted, which included a 60 subject double-blind placebo controlled clinical trial. The results were published in the Federation of American Societies for Experimental Biology in May 2005 and demonstrated Lactagen
™
to be an effective and safe product for reducing symptoms for nearly 80% of the clinical participants who were on Lactagen
™
.
The following four years were devoted to operations, launching marketing efforts in various distribution channels, developing an online storefront (
www.Lactagen.com
) and establishing production and fulfillment partners. Our focus was on testing the market potential for an alternative lactose intolerance treatment method. Extensive efforts were established to track and evaluate customer experiences with email, direct mail and telecommunication programs. Marketing funds were used to launch radio and television ads, as well as expand online marketing outreach.
In 2008, we expanded our focus by developing a prescription drug development program. We initiated the program by developing RP-G28, a second generation edition of Lactagen
™
. We believe that RP-G28 enables us to state stronger claims, garner more medical community support and reach a wider market in the effort to treat lactose intolerance. Extensive efforts during this period focused on assembling highly regarded regulatory, clinical, medical and manufacturing personnel, as well as conducting technical, regulatory and market analysis to prepare for the FDA approval process.
To help fund the development of RP-G28, we were awarded a grant from the United States government’s Health Care Bill program, the Qualifying Therapeutic Discovery Project, or QTDP, in 2008. The grant program provides support for innovative projects that are determined by the U.S. Department of Health and Human Services to have reasonable potential to result in new therapies that treat areas of unmet medical need and/or prevent, detect or treat chronic or acute diseases and conditions.
On September 16, 2008, we converted into a Delaware corporation under the name Ritter Pharmaceuticals, Inc.
By 2009, over 15,000 customers had purchased Lactagen
™
and we had accumulated a database of the names of over 75,000 sufferers.
By the end of 2009, we successfully secured a GMP compliant manufacturer and produced RP-G28 drug supplies. We successfully filed our Investigational New Drug, or IND, Application for RP-G28 to be able to move into Phase 2 studies in June 2010. In December 2010, we took Lactagen
™
off the market to solely focus on our drug development efforts.
In June 2011, we began a Phase 2a clinical trial on RP-G28 to validate the efficacy, safety, and tolerance of RP-G28 compared to placebo when administered to subjects with symptoms of lactose intolerance. The clinical results from the study, which concluded at the end of 2011, showed that RP-G28 improved lactose digestion versus placebo as measured by the improvement in digestive symptoms associated with lactose intolerance and decline in hydrogen production present in a hydrogen breath test. See the section below entitled “
Clinical and Regulatory
” for additional information regarding our Phase 2a clinical trial.
Our Leading Product Candidate — RP-G28
Overview
RP-G28 is a novel highly purified galacto-oligosaccharide, or GOS, which is synthesized enzymatically. The product is being developed to reduce the symptoms and frequency of episodes of abdominal pain associated with lactose intolerance. The therapeutic is taken orally (a powder solution mixed in water) for 30 consecutive days. The proposed mechanism of action of RP-G28 is to increase the intestinal growth and colonization of bacteria that can metabolize lactose to compensate for a patients intrinsic inability to digest lactose. Once colonization of bacteria has occurred, it is hypothesized that patients will continue to tolerate lactose as long as they maintain their microflora balance. RP-G28 has the potential to become the first FDA-approved drug for the reduction of symptoms associated with lactose intolerance.
Galacto-oligosaccharides (GOS)
RP-G28 is a >95% purified GOS product. GOS refers to a group of compounds containing β-linkages of 1 to 6 galactose units with a single glucose on the terminal end and are found at low levels in human milk. GOS products resist hydrolysis by salivary and intestinal enzymes because of the configuration of their glycosidic bonds and reach the colon virtually intact. The undigested GOS enhances the growth of beneficial, lactose metabolizing, colonic bacteria that already exist in the subject's digestive track, including multiple species and strains of bifidobacteria and lactobacilli. Once colonies of these bacteria have increased, continued lactose exposure should maintain tolerability of lactose without further exposure to RP-G28.
The significance of a higher purity GOS, namely RP-G28, was highlighted in a 2010 study by Klaenhammer. The in vitro study concluded that RP-G28 promoted growth of lactobacilli and bifidobacteria, but did not promote multiple strains of E. coli. In contrast, lower purity GOS stimulated both bifidobacteria as well as the strains of E. coli evaluated. (As seen below in Figure 2, NCK 430 (e. coli) grew in the presence of low purity GOS (GOS 2). Alternatively, the higher purity GOS (RP-G28/GOS 1) did not promote the growth of E. coli.).
Figure 2
Mechanism of Action
RP-G28 selectively increases colonization of lactose-metabolizing bacteria in the colon, such as bifidobacteria and lactobacilli, without increasing the growth of harmful bacteria, such as E. coli
.
Increased colonization of lactose-metabolizing colonic bacteria is associated with increased lactase activity and GOS utilization, thereby increasing the fermentation of lactose into galactose, glucose and short chain fatty acids. Digestion of lactose reduces lactose-derived gas production and thereby mitigates the symptoms of lactose intolerance.
Safety & Toxicology of GOS
Clinical studies of GOS products were reviewed as part of the safety evaluation to support the IND for RP-G28. The safety of GOS products in humans has been evaluated in 486 adults at doses of 2.5 to 15 gm/day for up to 14 weeks, 342 children at doses of 2.0 – 2.4 gm/day for up to 1 year, and in 2415 newborns and infants for up to 6 months. Overall, no reports of severe adverse events attributable to the consumption of GOS were reported in the literature.
Among the studies that included tolerance endpoints, side effects were limited to reports of flatulence, fullness, GI symptoms, and changes in stool consistency and frequency when GOS was consumed on a repeat basis at quantities of between 5.5 to 15 g/day (Ito 1990; Deguchi 1997; Teuri 1998); however, this effect was not consistently reported in all studies (Teuri and Korpela 1998; Depeint 2008; Drakoularako 2010; van de Heuval 1998; van Dokkum 1999; Bouhnik 2004; Sairanen and Piirainen 2007; Shadid 2007). Similar observations of increased flatulence have been reported following the consumption of fructooligosaccharides (15 gm/day) over a 7-day period (Alles 1996), and this symptom represents a localized effect that is expected in association with the consumption of indigestible fiber in large quantities. There were no reports of events in other System Organ Class (SOC) suggestive of systemic toxicity.
RP-G28 Clinical Safety
In addition to the nonclinical studies evaluating GOS products, the safety of RP-G28 for clinical investigation is supported by clinical safety results from the recently completed Phase 2a study, G28-001. In this study, RP-G28 was escalated from 1.5 grams per day to 15 grams per day over a 35-day dosing period.
RP-G28 was well-tolerated. There were no serious adverse effects. The most common adverse effects were headache, dizziness, nausea, upper respiratory tract infection, nasal congestion and pain. All adverse effects were mild or moderate in severity, and event occurrence was distributed over the treatment and post-treatment follow-up phase. No clinically significant changes or findings were noted from clinical lab evaluations, vital sign measurements, physical exams, or 12-lead electrocardiograms.
Our Market Opportunity
Unmet Medical Needs
Lactose intolerance is a challenging condition to manage. Not only can symptoms be painful and embarrassing, they can also dramatically affect one’s quality of life, social activities, and health. Currently there are few reliable, or effective, treatments available that provide consistent or satisfactory relief. According to a market research study conducted by Objective Insights in April 2012, approximately 60% of lactose intolerant sufferers reported experiencing symptoms daily, or bi-weekly
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” June 2012.]
Over 75% of patients modify their diets, and 80% of patients have reported altering their daily activities, to better manage their lactose intolerance symptoms
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” June 2012].
According to the American Academy of Pediatrics Committee on Nutrition (2006), “the symptoms of lactose intolerance can lead to significant discomfort, disruption of the quality of life, and loss of school attendance, leisure and sports activities, and work time, all at a cost to individuals, families and society.”
Currently, there is no approved prescription treatment for lactose intolerance. Most persons with lactose intolerance avoid ingestion of milk and dairy products while others substitute non-lactose-containing foods in their diet. However, complete avoidance of lactose-containing foods is difficult to achieve (especially for those with moderate to severe symptoms) and can lead to significant long-term morbidity,
i.e.
, dietary deficiencies of calcium and vitamin D.
At the 2010 National Institute of Health, or NIH, Consensus Development Conference: Lactose Intolerance and Health, the NIH highlighted numerous health risks tied to lactose intolerance such as: osteoporosis; hypertension; and low bone density
[Such F., Brannon P., Varpenter T., et al. NIH Consensus Development Conference Statement: Lactose Intolerance and Health, 2010: 1-27].
There is substantial evidence indicating that lactose intolerance is a major factor in limiting calcium and nutrient intake in the diet of people who are lactose intolerant. Adequate calcium intake is essential to reducing the risks of osteoporosis and hypertension
[McCarron and Heaney (2004)].
In addition, chronic calcium depletion has been linked to increased arterial blood pressure, thereby establishing a relationship between hypertension and a low calcium intake
[Karania et al. (1994)].
Moreover, there is evidence of a correlation between calcium intake and both colon and breast cancer
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” June 2012].
Over 50% of lactose intolerant patients are very concerned that they may be susceptible to one of these health risks, as a result of their lactose intolerance
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28,” (June 2012)].
Treatment Options
Doctors generally recommend the following treatments for the management of lactose intolerance: (1) dairy avoidance; (2) lactase supplements; (3) probiotics/dietary supplements; and (4) dairy substitutes/lactose free products. Despite educating their patients on all viable treatment options, physicians tend to advise their patients to refrain from consuming any dairy products whatsoever. However, 47% of lactose intolerance sufferers report that this method is not effective. Further, only 30% of lactose intolerance sufferers report lactase supplements are effective in managing their lactose intolerance
[Survey conducted by Engage Health in May – June 2008].
These statistics suggest that the majority of lactose intolerance patients are dissatisfied with current treatment options.
Patients Unsatisfied with Current Management Options
Dairy Avoidance
Lactose intolerance has had a dramatic effect on peoples’ lifestyles. Although the most utilized approach to date has been the avoidance of dairy products, this approach fails to realize that it is not always easy to discern the foods that contain milk, milk products, or other dairy ingredients. Despite closely monitoring everything they eat, lactose intolerance sufferers are still at risk of symptoms due to hidden dairy products in ingredients. To avoid any possible embarrassing or physically painful episode, lactose intolerance sufferers may choose to avoid restaurants, going out, traveling, and limit their social interactions.
Lactase Supplements
A wide variety of nutritional supplements are sold to reduce symptoms of lactose intolerance, but there is few rigorous clinical data to substantiate their benefit. Lactase supplements are taken to aid in the digestion of dairy products. The supplements act as an enzyme replacement, supplying consumers with
lactase, the enzyme necessary to break down lactose. These supplements must be taken prior to ingestion of dairy products. Consequently, consumers are forced to carry lactase supplements with them. These pills do not work consistently and dosages can be difficult to determine because dairy foods have varying amounts of lactose. For example, the most widely used supplement in the United States is Lactaid
®
, which has been marketed for over 30 years to people with symptoms of lactose intolerance. Lactaid
®
is commonly used in conjunction with dairy avoidance or lactose-free products. Depending on the amount of lactose consumed, patients may need to ingest five or more pills a day to manage their symptoms of lactose intolerance. As a result, enzyme supplementation is an adjunct to, not a substitute for, dietary dairy restriction. In 2008, 32% of lactose intolerant sufferers reported often or occasional use of lactase supplements, compared to only 22% reporting usage of these supplements five years ago.
These findings suggest that there is a need for a tolerable and convenient medical treatment that allows for normal intake of milk and dairy product consumption in people with lactose intolerance.
Probiotics/Dietary Supplements
There are many complementary products that can be taken to help reduce gastrointestinal symptoms, and/or promote digestive health in general. Included in this category are probiotics and digestive enzymes. These products are not specifically marketed for lactose intolerance; rather they are directed towards general gastrointestinal symptoms.
Probiotics help to increase “friendly flora” in the digestive tract by aiding in proper bowel function, easing digestion, and reducing overall digestive distress. Probiotic consumption over the past ten years has dramatically increased as many yogurt manufacturers are starting to promote and market its benefits.
Digestive enzymes are considered indirect options because lactose intolerant sufferers may opt to consume such products in place of lactase supplements. Digestive supplements mainly aid and support one’s digestive system, helping break down general foods consumed, but don’t directly help with lactose intolerance.
Dairy Substitutes/Lactose-Free Products
Dairy-free and lactose-free dairy products allow lactose intolerant sufferers the ability to enjoy the benefits of dairy without suffering symptoms. Dairy substitutes are items that do not contain lactose, but instead contain a substitute such as soy or rice. Lactose-free and dairy-free products are easier for lactose intolerant individuals to digest because lactose sugar is taken out of the product or lactase enzymes are added enabling easier digestion.
Most dairy products can now be found in a “dairy-free” alternative, including milk, ice cream, cheese, butter, creams, yogurt and milk chocolate. Although these products are available in stores, they are rarely found in restaurants, and are hard to find while traveling. Moreover, the taste tends to be different than their original counterparts, and they tend to be more expensive.
Growing Awareness
Lactose intolerance is a condition that continues to expand as society advances and evolves. Education and awareness have increased, and the American diet has greatly changed over the past decade to include more dairy-based goods. As the populace is growing older, the prevalence of lactose intolerance is increasing because more people tend to develop lactose intolerance later in life. Increased education and diagnosis is making more people aware of their allergies and digestive conditions. Physicians may compound the growth of lactose intolerance prevalence and its associated disorders by recommending individuals to avoid dairy products, a practice which in and of itself may increase severity of the intolerance.
At least 75% of lactose intolerance patients would like to see a treatment, and believe that it is “very important” to find an adequate and satisfactory treatment
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
Results from a recent market survey study indicate that 54% of respondents suffering from moderate symptoms would likely ask their physician for a prescription
[Engage Health Inc., “Market Potential for an Rx and Nutritional Supplement Product for Lactose Intolerance in the US” (June 2008)].
Additionally, 61% of individuals suffering from severe lactose
intolerance symptoms would be likely to ask their physician for treatment
[Engage Health Inc., “Market Potential for an Rx and Nutritional Supplement Product for Lactose Intolerance in the US” (June 2008)].
These results suggest that the need for treatment increases with the severity of a patient’s symptoms.
Physician Awareness
Doctors report that there is an unmet need in the current reduction of symptoms associated with lactose intolerance, especially for those patients with moderate to severe symptoms
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
Patients with moderate to severe symptoms have a challenging time completely avoiding dairy foods all together. Physicians experience a steady stream of lactose intolerance cases. It is estimated that gastroenterologists see approximately 15 new patients with lactose intolerance each month
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
Doctors tend to diagnose lactose intolerance in a patient before the patient is able to self-diagnose it
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
However, patients tend to initiate discussion about lactose intolerance with their doctors. This is indicative of broad public awareness of lactose intolerance. Doctors often administer two tests for diagnosing lactose intolerance: (i) a symptom history test and (ii) a hydrogen breath test. Approximately 50% of people diagnosed with lactose intolerance undergo a symptom history test
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
A symptom history test is the foundation for diagnosis of lactose intolerance reported by all physicians interviewed
[Objective Insights, “Market Research Analysis and Forecasts on Lactose Intolerance and RP-G28” (June 2012)].
Our Competitive Strengths
Market Opportunity
RP-G28 has the potential to become the first approved drug in the United States and Europe for the reduction of symptoms associated with lactose intolerance.
Renowned Scientific Team and Management Team
Our leadership team has extensive biotechnology/pharmaceutical expertise in discovering, developing, licensing and commercializing therapeutic products. We have attracted a scientific team comprised of innovative researchers who are renowned in their knowledge and understanding of the host-microbiome in the field of lactose intolerance and gastroenterology.
Substantial Patent Portfolio and Product Exclusivity
We have an issued patent in the United Kingdom directed to the composition of non-digestible carbohydrates, and issued patents directed to methods of using these compositions for the treatment of lactose intolerance and symptoms. Additional worldwide patent applications are pending. The patent applications include claims covering compositions, methods, formulations and packaging.
In addition, we have secured an exclusive supply agreement for GMP produced product from Ricerche Sperimentali Montale SpA, or RSM, a prominent oligosaccharide manufacturer in Europe and affiliate of the Inalco Group. The agreement grants us an exclusive option to assignment of certain of Inalco’s patent applications for the process to produce ultra high purity galacto-oligosaccharide active pharmaceutical ingredients, including RP-G28.
See the section below entitled “
Intellectual Property
” for additional information regarding our patent portfolio.
Our Growth Strategy
In order to achieve our objective of developing safe and effective applications to treat conditions associated with microbiome disfunctions, our near-term and long-term strategies include the following:
•
complete the Phase 2b study and pivotal Phase 3 studies of RP-G28 for the reduction of symptoms associated with lactose intolerance in patients;
•
seek regulatory approval of RP-G28 for the reduction of symptoms associated with lactose intolerance if the clinical trials are successful, initially in the United States and subsequently in the rest of the world;
•
develop and commercialize RP-G28 either by ourselves or in collaboration with others throughout the world;
•
explore the use of RP-G28 for additional potential therapeutic indications and orphan indications;
•
establish the Company as a leader in developing therapeutics that modulates the human gut microbiome;
•
continue to develop a robust and defensible patent portfolio, including those we own and those we plan to in-license in the future; and
•
continue to optimize our product development and manufacturing capabilities both internally and externally through outside manufacturers.
Clinical and Regulatory
IND Application/Phase 1
The IND application for RP-G28 was submitted to the FDA in June 2010. The safety and tolerability profile, pharmacokinetics and dose response curve of GOS products are well understood. Therefore, as part of the IND submission, we proposed that the data supporting the IND was sufficient to support a Phase 2 proof-of-concept study in a small number of lactose-intolerant patients. The FDA agreed with this proposal and the typical Phase 1 clinical program in healthy volunteers was replaced by a Phase 2a program in subjects with lactose intolerance.
On June 28, 2010, we received an advice letter from FDA regarding our IND submission. The FDA suggested that we (1) consider expanding our inclusion criteria to include females of childbearing potential who are willing to use appropriate contraception throughout the duration of the protocol; (2) follow the FDA’s guidance regarding Patient-Reported Outcome Measures; and (3) include a pharmacokinetic study in our proposed Phase 2a trial to determine the extent of systemic exposure of RP-G28.
Phase 2a Study
On June 12, 2013, we announced positive data from our Phase 2a first-in-human, proof of concept clinical study of RP-G28. The purpose of the study was to assess the effectiveness, safety and tolerability of RP-G28 compared to a placebo when administered to subjects with symptoms associated with lactose intolerance. The results were presented at Digestive Diseases Week and the New York Academy of Sciences Conference on Probiotics, Prebiotics and the Host Microbiome: The Science of Translation, and co-sponsored by the Sackler Institute for Nutrition Science and the International Scientific Association of Probiotics and Prebiotics.
The double-blinded, randomized, multi-center, placebo-controlled Phase 2a study evaluated RP-G28 in 62 patients with lactose intolerance over a treatment period of 35 consecutive dates. Post-treatment, subjects reintroduced dairy into their diets and were followed for an additional 30 days to evaluate lactose digestion, as measured by hydrogen production and symptom improvements. In order to confirm lactose intolerance and study participation, subjects underwent a 25-gram lactose challenge in the clinic. Lactose intolerance symptoms and hydrogen production via hydrogen breath test were assessed for six hours post-lactose dose. Eligible subjects were required to demonstrate a minimum symptom score and a
“positive” hydrogen breath test in order to be eligible for randomization. A “positive” breath test was defined as a hydrogen gas elevation of 20 parts per million (ppm) at two time-points within the six hours following a lactose-loading dose. The primary endpoints included tracking patients’ gastrointestinal symptoms via a patient-reported symptom assessment at baseline, day 36 and day 66; as well as the measurement of hydrogen gas levels in their breath following a 25-gram lactose challenge. Changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms (T-RFLP) and microbiome analysis of 16S rNA genes by pyrosequencing.
![[MISSING IMAGE: T1500225_GRAPH-OTUS.JPG]](https://content.edgar-online.com/edgar_conv_img/2015/03/23/0001571049-15-002195_T1500225_GRAPH-OTUS.JPG)
RP-G28 was well tolerated, with no significant adverse events reported. The Phase 2a study demonstrated clinically meaningful benefits to patients on treatment, whereas treated subjects reported increased tolerance to lactose and dairy foods: reduced lactose intolerance symptoms (gas, bloating, cramping and abdominal pain) were reported in subjects on RP-G28, a durable reduction in abdominal pain (p=0.019) was reported, and treated patients were six times more likely to describe themselves as lactose tolerant (p=0.039).
Key findings of the Phase 2a study include:
•
RP-G28 was well tolerated with no significant study-drug related adverse effects. The benign adverse event safety profile of RP-G28 with dose levels up to 15 gm/day observed in this study is consistent with the known safety of GOS products administered up to 20 gm/day reported in literature.
•
Subjects in the RP-G28 group reported a reduction in total symptoms after treatment. Reported symptom improvement continued 30 days post-treatment. Improvement in symptoms was assessed in the study using several different measures, including a pain likert scale and a patient global assessment. Subjects receiving RP-G28 had greater improvement in most of their symptoms (cramps, bloating and gas) following lactose challenge compared to placebo, but the differences were not statistically significant given the small cohort size. However, a clinically meaningful reduction in abdominal pain was seen in subjects receiving RP-G28 compared to placebo.
•
An analysis of “responders” for abdominal pain (defined as subjects who reported a score of zero in abdominal pain severity following a lactose challenge at Day 36/Hour 6 and Day 66/Hour 6) was performed. In the 55 subjects who noted abdominal pain following the baseline (Day 0) lactose challenge, 50% of RP-G28-treated subjects reported no abdominal pain compared to 17% of the placebo-treated subjects. This difference was statistically significant (p = 0.0190). See Figure 3 below.
•
Further, an analysis of “responders” for abdominal pain (defined as subjects who reported a greater than 50% decrease in abdominal pain severity following lactose challenge between Day 0/Hour 6 and Day 36/Hour 6) was performed. In the 55 subjects who noted abdominal pain following the baseline (Day 0) lactose challenge, 72.2% of RP-G28-treated subjects reported a >50% reduction in abdominal pain severity compared to 42.1% of the placebo-treated subjects. This difference was also statistically significant (p=0.0288).
•
To better explore a meaningful benefit to patients, a global assessment was explored. Six times as many patients in the treatment group versus the placebo group described themselves as lactose tolerant and did not report symptoms associated with lactose intolerance on Day 66. After completion of study treatment at Day 36, subjects were encouraged to re-introduce dairy foods into their diet. Thirty days later (Day 66), subjects were asked to provide an assessment of their symptom status, i.e., whether they considered themselves still lactose intolerant compared with subjects receiving placebo (Yes/No). As seen below in Figure 3 below, in the 58 subjects providing responses, a significantly larger percentage of subjects receiving RP-G28 (30%) considered themselves no longer lactose intolerant compared with subjects receiving placebo (5.6%); this result was statistically significant (p=0.0389).
•
The reduction in total symptoms following a post-treatment lactose challenge was consistent with the improvement in post-treatment hydrogen breath test results as compared to baseline (pre-treatment) results. Although rarely used in clinical practice and primarily used to identify lactase deficiency, hydrogen measurements were used as an eligibility criterion as well as an outcome measure in our Phase 2a proof-of-concept study. Our intent was to better understand how lactose intolerant symptoms and hydrogen values correlated and whether a treatment effect could be detected by hydrogen production. In the RP-G28 group, the median peak hydrogen production was 113 ppm on Day 0 and 110 ppm on Day 36. In the placebo group, the median peak hydrogen production was 94 ppm at Day 0 and 113 on day 36. At Day 0 and Day 36, the median total hydrogen production was 385 ppm and 367 ppm, respectively, for the RP-G28 group and 347 and 436 ppm, respectively, for the placebo group. Comparison of the hydrogen breath test results between RP-G28 and placebo shows that median hydrogen production was generally similar between the two treatment groups at Day 0 while at Day 36, median hydrogen production was lower in the RP-G28 group compared to placebo at the peak time points of 2 to 4 hours. While the differences were not large, the RP-G28 group had consistently lower levels of breath hydrogen production from Hours 2 to 6 following lactose challenge, but the results did not correlate with clinical symptoms. In the Placebo group, differences in hydrogen production following lactose challenge were not apparent.
Figure 3
![[MISSING IMAGE: T1500225_GRAPH-GLOBAL.JPG]](https://content.edgar-online.com/edgar_conv_img/2015/03/23/0001571049-15-002195_T1500225_GRAPH-GLOBAL.JPG)
In the Phase 2a study, changes in the fecal microbiome were investigated using both Terminal Restriction Fragment Length Polymorphisms (TRFLP), a molecular biology technique for profiling microbial communities based on the position of a restriction site closest to a labeled end of an amplified gene, and microme analysis of 16S rRNA genex by pyrosequencing, a method of DNA sequencing (determining the order of nucleotides in DNA). In addition, Principal Component Analysis (PCA), a multivariate method that helps transform a number of possibly correlated variables into a smaller number of uncorrelated variables called principal components, thereby reducing the dimensions of a complex dataset, showed statistically significant shifts in the microbiome of subjects fed RP-G28, compared to placebo, at 66 days. Specifically, RP-G28 significantly altered the microbiomes of 82% of the study participants who received the treatment. Principal Coordinates Analysis (PCoA), a multivariate method that helps visualize similarities and dissimilarities in large datasets, was also utilized to analyze the microbiome data. For analysis of 16S amplicon sequencing data, we created Unweighted Unifrac similarity matrices (that is we conducted PCoA) and applied ANOSIM (Analysis of Similarities) and PERMANOVA (Permutational Analysis of Variance) statistical analyses. Our analysis showed a significant association between Day (day 0 or baseline, and day 36 and 66 as categories) and microbiome composition (ANOSIM R = 0.218, P = 0.0001, PERMANOVA Pseudo-F = 3.4318, P = 0.0001). These data indicate that RP-G28 and subsequent introduction of lactose into the diet had impacted the fecal microbiome of participants. Further, lactose metabolizing bacteria were shown to increase in the treatment group.
The results of our Phase 2a study were published in Nutrition Journal in a manuscript entitled “
Improving lactose digestion and symptoms of lactose intolerance with a novel galacto-oligosaccharide (RP-G28): a randomized, double-blind clinical trial
.”
We have received FDA guidance on RP-G28’s clinical and regulatory pathway. A development plan is in place and preparation for a Phase 2b clinical trial is underway. The Phase 2b clinical trial will include a multi-center double-blinded, placebo controlled clinical trial of approximately 300 subjects.
We plan to commence a Phase 2b clinical program in the first quarter of 2016. The Phase 2b study will be designed to evaluate dosing, safety and efficacy of RP-G28 to decrease abdominal pain and other symptoms related to lactose intolerance. The plans for the Phase 2b program are (1) to evaluate the efficacy
of multiple dose levels of RP-G28, (2) to collect qualitative and quantitative evidence to finalize development of its end points to be used in our Phase 3 pivotal trials, and (3) to collect long-term data on the durability of the treatment effect of RP-G28 beyond the 30-day treatment period.
Nonclinical Safety Plans
Given the established safety profile of GOS in humans and the lack of significant safety concerns with RP-G28 administered to subjects in the Phase 2a study, no additional non-clinical safety studies are planned to support continued evaluation of RP-G28 in the Phase 2 program.
Guidelines adopted by the FDA and established by ICH require nonclinical studies that specifically address female fertility to be completed before the inclusion of women of child bearing potential in large-scale or long-duration clinical trials (e.g., Phase 3 trials). In the United States, such assessments of embryo-fetal development can be deferred until before Phase 3 using precautions to prevent pregnancy in clinical trials. As the FDA recommended in their June 28, 2010 advice letter, we will continue to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of any study. In addition, to support Phase 3 studies, we plan to perform ICH-compliant embryo-fetal development toxicology studies of RP-G28. We will then confirm any negative findings from these toxicology studies in a standard battery of ICH-compliant genotoxicity tests using RP-G28.
As FDA recommended in their June 28, 2010 advice letter, we will continue to evaluate females of child-bearing potential who are willing to use appropriate contraception throughout the duration of the protocol. To support Phase 3 studies, we plan to perform ICH-compliant GLP embryo-fetal development toxicology studies of RP-G28. Ritter also plans to confirm the negative findings in a standard battery of ICH-compliant, GLP genotoxicity tests using RP-G28.
Phase 2b Planned Study
The Phase 2b study will be designed to evaluate dosing, safety and efficacy of RP-G28 to improve abdominal pain and other symptoms related to lactose intolerance. The plans for the Phase 2b program are (1) to evaluate the efficacy of multiple dose levels of RP-G28, (2) to collect qualitative and quantitative evidence to finalize development of its end points, and (3) to collect long-term data on the treatment effect of RP-G28 beyond the 30-day treatment period.
The Phase 2b clinical trial will include a multi-center double-blinded, placebo controlled clinical trial of approximately 300 subjects to determine the maximum tolerated dose and optimal dose-escalation schedule for RP-G28. We intend to assess patients with moderate to severe abdominal pain as measured by a pain Likert scale after a lactose challenge. Additional lactose intolerance symptoms (gas, bloating, diarrhea, cramps) will also be measured. The study design will include a screening phase; a 30-day course treatment phase and a 30-day post-treatment evaluation phase. The study will be designed to gradually escalate the dose beyond the 15 gm/day dose level evaluated in the Phase 2a study. Subjects will abstain from milk or dairy products and will be randomized evenly (1:1:1:1) to receive one of three doses of RP-G28 or placebo for 30 days. Down-titration of a dose may occur, if at any time a dose is not tolerated. If, after the down-titration of a dose, the subject cannot tolerate the lower dose, then the subject may discontinue from the study.
Subjects will be followed post-treatment for an additional 30 days while milk and dairy products are re-introduced into their diets. The primary endpoint will be durable reduction in abdominal pain, with secondary endpoints measuring changes in individual lactose intolerance symptoms (gas, bloating, diarrhea, cramps). This study will also include collection of blood samples to assess systemic exposure to RP-G28 using measurement of serum concentrations of a trisaccharide. This will be monitored as a surrogate to assess the systemic bioavailability of orally administered RP-G28.
In order to gather long-term data on subjects exposed to RP-G28, subjects completing protocol G28-003 will be offered enrollment in an observational extension study, G28-004. As RP-G28 is expected to provide extended relief from lactose intolerance symptoms beyond the initial 30-day treatment phase, this extension study will assess the long-term treatment effect of various dose levels of RP-G28 administered in Study G28-003. Results from this study will guide the need to evaluate an additional 30-day course of treatment in Phase 3 in subjects who experience the return of lactose intolerance symptoms after an initial course of RP-G28.
Research and Development Agreement with Kolu Pohaku Technologies and Kolu Pohaku Management, LLC
As described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” on November 30, 2010, we entered into the R&D Agreement with KPT and KPM. The R&D Agreement calls for KPT to make a series of payments to us totaling $1,750,000 in exchange for us performing certain research and development activities in Hawaii for the benefit of KPT (referred to herein as the KP Research), from the effective date of the agreement through December 31, 2014. The KP Research consists of the initial phase of research, including the conduct of Phase 2 clinical trials in Hawaii for RP-G28. Under the terms of the R&D Agreement, we maintained sole and exclusive control over the manner in which we and our employees and contractors performed the KP Research. Pursuant to the terms of the R&D Agreement, we maintain ownership of the results of our ongoing research related to RP-G28, but KPT maintains ownership of the results of the KP Research. Inventions, developments, and improvements arising out of the KP Research are owned by KPT. We bear any costs involved in obtaining patents for any inventions, developments or improvements resulting from the KP Research. In exchange for the irrevocable, perpetual, exclusive, worldwide right and license to the results of the KP Research, as they are generated under the R&D Agreement, we agreed to pay a quarterly royalty payment to KPT of $32,000 commencing March 31, 2015 and continuing through December 31, 2035. The license includes, without limitation, our right to sublicense the KP Research and to make, have made, use, sell, offer for sale and import products based, in whole or in part, on the KP Research. The R&D Agreement was subsequently amended on, July 6, 2011, September 30, 2011, February 6, 2012 and November 4, 2013 to increase the funding to be received by us thereunder and to add royalty payments made by us for years subsequent to the original agreement. The term of the R&D Agreement expires December 31, 2035, unless sooner terminated (as described below).
In connection with the R&D Agreement, we also granted the KPM Option to KPM. Pursuant to the terms of the KP Option Agreement, we may, at any time after December 31, 2014, put 1,469,994 shares of our Series B preferred stock to KPM. KPM also has the option, at any time after December 31, 2014, to call this same number of shares of Series B preferred stock from us. The number of shares is determined by dividing the $1,750,000 of payments made by KPT to us under the R&D Agreement by the Series B original issue price of $1.19. Irrespective of whether the above exercise date has passed, the KPM Option automatically exercises immediately prior to any of the following events: (i) a qualified public offering by us (which will include this initial public offering), (ii) our liquidation or winding up, (iii) the licensure of our RP-G28 technology, or (iv) any redemption or conversion of our outstanding Series B preferred stock. Exercise of the KPM Option under any scenario will result in full satisfaction of our obligation to make royalty payments to KPT under the R&D Agreement and KPT’s right, title and interest in the research conducted pursuant to the R&D Agreement will at such time become our property. In the event of a breach of the R&D Agreement by us, KPM and KPT’s sole remedy is to either exercise the KPM Option, even if before December 31, 2014, or institute an action for money damages in an amount not to exceed the payments under the R&D Agreement.
Clinical Supply and Cooperation Agreement with Ricerche Sperimentali Montale and Inalco SpA
In December 2009, we entered into a Clinical Supply and Cooperation Agreement, or the Supply Agreement, with Ricerche Sperimentali Montale, or RSM, and Inalco SpA, or Inalco. Pursuant to the terms of the Supply Agreement, RSM has exclusively manufactured for us, and will continue to manufacture for us in connection with our Phase 2b study, an improved form of GOS (higher purity), or Improved GOS. RSM also agreed that it will not, except as necessary for RSM to perform its obligations under the Supply Agreement, market or sell Improved GOS, or any galacto-oligosaccharides that are of greater purity to any third party. In addition to our payments to RSM for the GOS manufactured or to be manufactured by RSM for us in connection with our clinical trials, we agreed to pay RSM milestone payments for (i) its assistance in seeking the necessary regulatory approvals for RP-G28, including a payment upon the effective date of the Supply Agreement; and upon completion to our satisfaction of the drug master file submission to the FDA related to RP-G28 or another product using Improved GOS, plus (ii) a monthly fee, which will become payable 30 days after our receipt of $10,000,000 from a financing transaction, or the Financing Receipt, until such time as the parties agree that RSM’s support for regulatory approval is no longer required. Pursuant to the terms of the Supply Agreement, we also agreed to reimburse RSM for its reasonable costs actually incurred in purchasing certain equipment required to perform its analysis methods for Improved GOS, which equipment we will own upon payment.
Pursuant to the terms of the Supply Agreement, RSM granted us an exclusive worldwide option to the assignment of all right, title and interest to the Improved GOS, or the Improved GOS IP, which we may exercise by paying RSM a fee considered the First Option Payment, within 10 days of a Financing Receipt, which would include this offering. As additional consideration for the assignment of the Improved GOS IP, we agreed to pay RSM an additional fee, or the Second Option Payment, within 10 days of the approval by the FDA of the NDA for our first product containing Improved GOS. See the section below entitled “Intellectual Property — Patents and Proprietary Rights Covering Our Drug Candidates” for additional information regarding the Improved GOS IP.
Pursuant to the terms of the Supply Agreement, the parties to the Supply Agreement have agreed that in the event we are able to obtain a Financing Receipt, the parties to the Supply Agreement will enter into a further agreement, or the Proposed Agreement, for the purpose of clarifying future manufacturing services to be provided by RSM to us regarding Improved GOS and payment by us for such services. The Supply Agreement sets forth certain terms and conditions that the parties to the agreement have agreed will be included in the Proposed Agreement, including, among other things, a provision that calls for certain milestone payments to be paid to RSM by us in the event we receive approval from the FDA to market RP-G28 or another product using Improved GOS, which milestone payments will be based upon the number of “units” sold by us containing Improved GOS. The Proposed Agreement will terminate upon the expiration of the first patent filed by RSM regarding Improved GOS.
The Supply Agreement was amended in September 2010. Pursuant to the terms of the amendment, we have paid all obligations to RSM in satisfaction of the payment due to RSM upon completion to our satisfaction of the drug master file submission to the FDA related to RP-G28 (as described above). The amendment also further defined the terms and conditions of the supply of Improved GOS by RSM to us to ensure adequate and timely delivery of Improved GOS to us.
Commercialization
Given our stage of development, we have not yet established a commercial organization or distribution capabilities. RP-G28, if approved, is intended to be prescribed to patients suffering from lactose intolerance. These patients are normally under the care of a gastroenterologist and/or a primary care physician. Our current plan is to evaluate a possible partnership to commercialize RP-G28 for the reduction of symptoms associated with lactose intolerance in patients in the United States and Europe if it is approved. We may also build our own commercial infrastructure or utilize contract reimbursement specialists, sales people and medical education specialists, and take other steps to establish the necessary commercial infrastructure at such time as we believe that RP-G28 is approaching marketing approval. Outside of the United States and Europe, subject to obtaining necessary marketing approvals, we will likely seek to commercialize RP-G28 through distribution or other collaboration arrangements for patients suffering from lactose intolerance.
Competition
The biopharmaceutical industry is characterized by intense competition and rapid innovation. Although we know of no other drug candidate in advanced clinical trials for treating lactose intolerance, other biopharmaceutical companies may be able to develop other compounds or drugs that are able to achieve similar or better results. Our potential competitors include major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and universities and other research institutions. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. We believe the key competitive factors that will affect the development and commercial success of our product candidates are efficacy, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
Intellectual Property
The proprietary nature of, and protection for, our product candidates and our discovery programs, processes and know-how are important to our business. We have sought patent protection in the United States and internationally for uses of RP-G28 and our discovery programs, and any other inventions to which we have rights, where available and when appropriate. Our policy is to pursue, maintain and defend patent rights, whether developed internally or licensed from third parties, and to protect the
technology, inventions and improvements that are commercially important to the development of our business. We also rely on trade secrets that may be important to the development of our business. We do not have composition of matter patent protection for RP-G28 which may result in competitors being able to offer and sell products so long as these competitors do not infringe any other patents that we hold, or that third parties hold, including patents in Europe to which we have an exclusive option of assignment, which are directed to methods of manufacturing and purified RP-G28, and U.S. patents that we own, that are directed to methods of using RP-G28.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current and future product candidates and the methods used to develop and manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products depends on the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our product candidates, discovery programs and processes from commercial competition. Furthermore, we cannot be sure that issued patents will not be challenged in court as invalid or in the Patent Office as unpatentable. For this and more comprehensive risks related to our intellectual property, please see “Risk Factors — Risks Relating to Our Intellectual Property.”
Patents and Proprietary Rights Covering Our Drug Candidates
We strive to protect our product candidates and exclusivity rights, as well as both maintain and fortify our position in the field of reduction of symptoms associated with lactose intolerance. We believe our intellectual property portfolio consists of early and broad filings in the area. We have focused on patents and patent applications covering, where possible, use of our products in disease treatment. We have sought and continue to seek the strongest possible intellectual property protection available to us in order to prevent others from directly competing with us, as well as to exclude competition around our products where possible, their manufacture, and methods for use of the products in disease treatment. Our intellectual property portfolio related to RP-G28 contains four issued patents and at least 15 other related, pending patent applications in the United States and worldwide for Ritter Pharmaceuticals-owned inventions. As described above, Ritter Pharmaceuticals also holds an option to acquire a patent family, currently owned and controlled by Inalco, S.p.A., including claims generally directed to processes for producing an improved form of galactoologosaccharides (GOS) mixtures (higher purity); this family includes issued patents in Italy (not expiring until 2029), Germany, and the Netherlands (not expiring until 2030), as well as applications pending in the United States, China, India, and other jurisdictions that, if issued, will not expire until 2030.
This portfolio includes patents and proprietary rights related to:
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U.S. Patent No. 8,486,668, which has a current expiry date of February 17, 2030, includes claims generally directed to methods for treating lactose intolerance comprising administering, for a predetermined number of days, a high purity galactooligosaccharides (GOS) pharmaceutical composition, and wherein the administration leads to a persistent decrease in at least one symptom of lactose intolerance;
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U.S. Patent No. 8,492,124, which has a current expiry date of February 17, 2030, includes claims generally directed to methods for treating lactose intolerance comprising administering, for a predetermined number of days, a controlled release pharmaceutical composition that contains galoctooligosaccharides (GOS), but does not contain a probiotic; and
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U.S. Patent No. 8,785,160, which has a current expiry date of February 17, 2030, includes claims generally directed to methods for treating lactose intolerance comprising administering a hydrogen breath test, diagnosing lactose intolerance based upon the hydrogen breath test, and administering a high purity galactooligosaccharides (GOS) pharmaceutical composition.
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United Kingdom Patent No. GB2480042, which has a current expiry date of February 16, 2030, includes claims generally directed to a solid oral unit-dosage form of a high purity galactoologosaccharides (GOS).
The Company is pursuing patent applications. These applications are pending in the United States, Europe, Japan and other jurisdictions, and, if they issue as patents, will not expire until at least 2030, and include claims generally directed to (i) oral dosage forms of a higher purity galactoologosaccharides (GOS), (ii) use of galactoologosaccharides (GOS) for treating lactose intolerance, and (iii) methods of preventing or reducing certain symptoms of lactose intolerance using galactoologosaccharides (GOS) dosage forms.
Intellectual Property Strategy
We continually assess our intellectual property strategy in order to fortify our position in our market space. To that end, we are prepared to file additional patent applications in any of the above families should our intellectual property strategy require such filings and/or where we seek to adapt to competition or seize business opportunities. Further, we are prepared to file patent applications relating to the other products in our pipeline soon after the experimental data necessary for a strong application become available and our cost-benefit analyses justify filing such applications. In addition to filing and prosecuting patent applications in the United States, we typically file counterpart patent applications in Europe and additional countries where we think such foreign filing is likely to be beneficial.
We do not know if patents will be issued for all of the patent applications in our portfolio. Furthermore, for patent claims now issued and for claims to be issued in the future, we do not know if such claims will provide significant proprietary protection to our drug candidates and proprietary technologies or if they will be challenged, circumvented, or invalidated. Our success will in part depend on our ability to obtain and maintain patents protecting our drug candidates, technologies and inventions, to operate without infringing the proprietary rights of third parties, and to enforce and defend our patents and ensure others do not infringe on our proprietary rights.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States, a patent’s term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution by the patentee, and a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent.
The patent term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration as compensation for the patent term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug or biologic is under regulatory review. Patent extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent applicable to an approved drug or biologic may be extended. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug or biologic. In the future, if and when our pharmaceutical products receive FDA approval we expect to apply for patent term extensions on patents covering those products. We anticipate that some of our issued patents may be eligible for patent term extensions. For more information regarding U.S. patent laws, see “Business — Government Regulation.”
In addition to the patent term extension rights described above, any of our product candidates that receive FDA approval may also be eligible for market exclusivity protection under the Federal Food, Drug and Cosmetic Act or the Biologics Price Competition and Innovation Act of 2009. For more information regarding market exclusivity laws, see “Business — United States Government Regulation.”
Many pharmaceutical companies, biotechnology companies and academic institutions are competing with us in the field of the reduction of symptoms associated with lactose intolerance and the manufacture of purified galactooligosaccharides, generally, and are filing and prosecuting patent applications potentially relevant to our business. In order to contend with the inevitable possibility of third party intellectual property conflicts, from time to time, we review and assess the third-party intellectual property landscape for competitive and other developments that may inform or impact our intellectual property development and commercialization strategies. From time to time, we may find it necessary or prudent to obtain licenses from third party intellectual property holders. Where licenses are readily available at reasonable cost, such
licenses are considered a normal cost of doing business. In other instances, however, where a third party holds relevant intellectual property and is a direct competitor, a license might not be available on commercially reasonable terms or available at all. Accordingly, we attempt to manage the risk that such third party intellectual property may pose by conducting, among other measures, freedom-to-operate studies to guide our early-stage research away from areas where we are likely to encounter obstacles in the form of third party intellectual property. As our programs advance, we continue to monitor the intellectual property landscape in an effort to assess the advisability of licensing third party intellectual property or taking other appropriate steps to address such freedom-to-operate or development issues in the manner we deem in the best interests of the Company.
With respect to third party intellectual property, it is impossible to establish with certainty that our product candidates will be free of claims by third party intellectual property holders or whether we will require licenses from such third parties. Even with modern databases and on-line search engines, literature searches are imperfect and may fail to identify relevant patents and published applications. Further, pending patent applications may not be published or otherwise accessible through literature searches. Even when a third party patent is identified, we may conclude upon a thorough analysis, that we do not infringe the patent or that the patent is invalid. If the third party patent owner disagrees with our conclusion and we continue with the business activity in question, we might have patent litigation thrust upon us. Alternatively, we might decide to initiate litigation (or an administrative proceeding in the Patent Office) in an attempt to have a court declare the third party patent invalid or we may decide to initiate litigation in an attempt to have a court declare the third party patent not infringed by our existing or planned activity. In either scenario, patent litigation or post-grant challenges in the Patent Office typically are costly and time-consuming, and the outcomes are uncertain. The outcome of patent litigation and/or post-grant challenges in the Patent Office are subject to uncertainties that cannot be quantified in advance, for example, the credibility of expert witnesses who may disagree on technical interpretation of scientific data. Ultimately, in the case of an adverse outcome in litigation, we could be prevented from commercializing a product or using certain aspects of our discovery platform as a result of patent infringement claims asserted against us. This could have a material adverse effect on our business.
To protect our competitive position, it may be necessary to enforce our patent rights through litigation against infringing third parties. Litigation to enforce our own patent rights is subject to the same uncertainties discussed above. In addition, however, litigation involving our patents carries the risk that one or more of our patents will be held invalid (in whole or in part, on a claim-by-claim basis), being held unenforceable, or being subject to a post-grant challenge in the Patent Office and deemed unpatentable. Such adverse court rulings could allow third parties to commercialize virtual copies our products, and then compete directly with us, without payment to us.
Trade Secrets
In addition to patents, we rely on trade secrets and know-how to develop and maintain our competitive position. Trade secrets and know-how can be difficult to protect. We seek to protect our proprietary processes, in part, by confidentiality agreements and invention assignment agreements with our employees, consultants, scientific advisors, contractors and commercial partners. These agreements are designed to protect our proprietary information. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our information technology systems.
Option to Acquire Inalco Patent
We are party to a Clinical Supply and Cooperation Agreement with Richerche Sperimental Montale spA, or RSM, and Inalco SpA, related to the manufacture and supply of galactooligosaccharides with high purity. Under that Agreement, RSM granted us an exclusive option to assignment of all “Improved GOS IP,” which we understand to include certain pending patent applications related to method for the manufacture of highly purified galactooligosaccharides, as used in RP-G28. The Agreement provided for conditions under which we may exercise that exclusive option. We may be unable to satisfy those conditions. Even if we are able to satisfy those conditions, the parties to the Agreement may be unwilling to assign the pending application to us. Furthermore, those pending application may be deemed unpatentable, and therefore never be issue as enforceable patents.
Manufacturing
We do not own or operate manufacturing facilities for the production of any of our product candidates, nor do we have plans to develop our own manufacturing operations in the foreseeable future. We currently rely on third-party contract manufacturers for all of our required raw materials, active pharmaceutical ingredient and finished product for our preclinical research and clinical trials. We do not have long-term agreements with any of these third parties. We also do not have any current contractual relationships for the manufacture of commercial supplies of any of our product candidates if they are approved. If any of our products are approved by any regulatory agency, we intend to enter into agreements with a third-party contract manufacturer and one or more back-up manufacturers for the commercial production of those products. Development and commercial quantities of any products that we develop will need to be manufactured in facilities, and by processes, that comply with the requirements of the FDA and the regulatory agencies of other jurisdictions in which we are seeking approval. We currently employ internal resources to manage our manufacturing contractors.
Government Regulation and Product Approval
Governmental authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, packaging, promotion, storage, advertising, distribution, marketing and export and import of products such as those we are developing. Our product candidates must be approved by the FDA through the NDA process before they may be legally marketed in the United States and by the EMA through the MAA process before they may be legally marketed in Europe. Our product candidates will be subject to similar requirements in other countries prior to marketing in those countries. The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
United States Government Regulation
NDA Approval Processes
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. Failure to comply with the applicable U.S. requirements at any time during the product development process or approval process, or after approval, may subject an applicant to administrative or judicial sanctions, any of which could have a material adverse effect on us. These sanctions could include:
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refusal to approve pending applications;
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withdrawal of an approval;
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imposition of a clinical hold;
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warning letters;
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product seizures and/or condemnation and destruction;
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total or partial suspension of production or distribution; or
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injunctions, fines, disgorgement, or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the following:
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completion of nonclinical laboratory tests, animal studies and formulation studies conducted according to Good Laboratory Practices, or GLPs, or other applicable regulations;
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submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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performance of adequate and well-controlled human clinical trials according to Good Clinical Practices, or GCPs, to establish the safety and efficacy of the proposed drug for its intended use;
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submission to the FDA of a NDA;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current Good Manufacturing Practices, or cGMPs, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; and
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FDA review and approval of the NDA.
Once a pharmaceutical candidate is identified for development, it enters the preclinical or nonclinical testing stage. Nonclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. Some nonclinical testing may continue even after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will also include a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase lends itself to an efficacy determination. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the IND on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin. A clinical hold may occur at any time during the life of an IND, and may affect one or more specific studies or all studies conducted under the IND.
All clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with GCPs. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must timely report to FDA serious and unexpected adverse reactions, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure, or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug. An institutional review board, or IRB, at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the study until completed and otherwise comply with IRB regulations.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1
. The drug is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and elimination. In the case of some products for severe or life-threatening diseases, such as cancer, especially when the product may be inherently too toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients.
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Phase 2
. Clinical trials are performed on a limited patient population intended to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. Although there are no statutory or regulatory definitions for Phase 2a and Phase 2b, Phase 2a is commonly used to describe a Phase 2 clinical trial designed to evaluate efficacy, adverse effects and safety risks and Phase 2b is commonly used to describe a subsequent Phase 2 clinical trial that also evaluates dosage tolerance and optimal dosage.
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Phase 3
. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical study sites. These studies are intended to establish the overall risk-benefit ratio of the product and provide an adequate basis for product labeling.
Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed. The FDA or the sponsor may suspend a clinical trial at any time for a variety of reasons, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the
clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
During the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new drug. If a Phase 2 clinical trial is the subject of discussion at the end of Phase 2 meeting with the FDA, a sponsor may be able to request a Special Protocol Assessment, or SPA, the purpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will form the primary basis of an efficacy claim.
According to published guidance on the SPA process, a sponsor which meets the prerequisites may make a specific request for a SPA and provide information regarding the design and size of the proposed clinical trial. The FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the record. The agreement will be binding on the FDA and may not be changed by the sponsor or the FDA after the trial begins except with the written agreement of the sponsor and the FDA or if the FDA determines that a substantial scientific issue essential to determining the safety or efficacy of the drug was identified after the testing began.
Concurrent with clinical trials, sponsors usually complete additional animal safety studies and also develop additional information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing commercial quantities of the product in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug and the manufacturer must develop methods for testing the quality, purity and potency of the drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its proposed shelf-life.
The results of product development, nonclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests and other control mechanisms, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA is subject to the payment of user fees, but a waiver of such fees may be obtained under specified circumstances. The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination of whether it is sufficiently complete to permit substantive review. It may request additional information rather than accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review. NDAs receive either standard or priority review. A drug representing a significant improvement in treatment, prevention or diagnosis of disease may receive priority review. The FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical or other data. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. The FDA reviews an NDA to determine, among other things, whether a product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant. The FDA may refer the NDA to an advisory committee for review and recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured and tested.
Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of FDA marketing approval of RP-G28, one of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND, and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for the extension and the application for extension must be made prior to expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of clinical trials and other factors involved in the submission of the relevant NDA.
Market exclusivity provisions under the FDCA also can delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an abbreviated new drug application, or ANDA, or a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement. The FDCA also provides three years of marketing exclusivity for an NDA, 505(b)(2) NDA or supplement to an approved NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric Exclusivity and Pediatric Use
Under the Best Pharmaceuticals for Children Act, or BPCA, certain drugs may obtain an additional six months of exclusivity, if the sponsor submits information requested in writing by the FDA (a Written Request) relating to the use of the active moiety of the drug in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines that information relating to the use of a drug in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.
We have not received a Written Request for such pediatric studies, although we may ask the FDA to issue a Written Request for such studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement, in accordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies for indications that are not currently in the labeling if the FDA determines that such information will benefit the public health. The FDA will accept the reports upon its determination that the studies were conducted in accordance with and are responsive to the original Written Request or commonly accepted scientific principles, as appropriate, and that the reports comply with the FDA’s filing requirements.
In addition, the Pediatric Research Equity Act, or PREA, requires all applications (or supplements to an application) submitted under section 505 of the FDCA (21 U.S.C. §355) for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration to contain a pediatric assessment unless the applicant has obtained a waiver or deferral. It also authorizes the FDA to require holders of approved NDAs for marketed drugs to conduct pediatric studies under certain circumstances. In general, PREA applies only to those drugs developed for diseases and/or conditions that occur in both the adult and pediatric populations. Products intended for pediatric-specific indications will be subject to the requirements of PREA only if they are initially developed for a subset of the relevant pediatric population.
As part of the Food and Drug Administration Safety and Innovation Act, Congress reauthorized both BPCA and PREA, which were slated to expire on September 30, 2012, and made both laws permanent.
Orphan Drugs
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic intended to treat a rare disease or condition, defined as a disease or condition with a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the cost of developing and making available the drug or biologic in the United States will be recovered from sales in the United States for that drug or biologic.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications, including a full NDA, to market the same product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. Orphan drug exclusive marketing rights in the United States also may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
We intend to explore orphan drug designation for RP-G28 for any orphan indication in which there is a medically plausible basis for treatment of the indication through colonic adaptation of gut bacteria.
Post-approval Requirements
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.
Any drug products manufactured or distributed by us pursuant to FDA approvals are subject to continuing regulation by the FDA, including, among other things:
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compliance with current good manufacturing practices;
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record-keeping requirements;
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reporting of adverse experiences with the drug;
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providing the FDA with updated safety and efficacy information;
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drug sampling and distribution requirements;
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notifying the FDA and gaining its approval of specified manufacturing or labeling changes; and
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complying with FDA promotion and advertising requirements.
Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and some state agencies for compliance with cGMP and other laws.
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations changed or what the impact of such changes, if any, may be.
Regulation Outside of the United States
In addition to regulations in the United States, we will be subject to regulations of other countries governing clinical trials and commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of countries outside of the United States before we can commence clinical trials in such countries and approval of the regulators of such countries or economic areas, such as the European Union, before we may market products in those countries or areas. The approval process and requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Under European Union regulatory systems, a company may submit marketing authorization applications either under a centralized or decentralized procedure. The centralized procedure, which is compulsory for medicines produced by biotechnology or those medicines intended to treat AIDS, cancer, neurodegenerative disorders or diabetes and optional for those medicines which are highly innovative, provides for the grant of a single marketing authorization that is valid for all European Union member states. The decentralized procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization may submit an application to the remaining member states. Within 90 days of receiving the applications and assessments report, each member state must decide whether to recognize approval. If a member state does not recognize the marketing authorization, the disputed points are eventually referred to the European Commission, whose decision is binding on all member states.
Reimbursement
Sales of our products will depend, in part, on the extent to which the costs of our products will be covered by third-party payors, such as government health programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly challenging the prices charged for medical products and services. Additionally, the containment of healthcare costs has become a priority of federal and state governments and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payors do not consider our products to be cost-effective compared to other therapies, they may not cover our products after approved as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities which
will provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-governmental payors.
The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the “ACA”), enacted in March 2010, is expected to have a significant impact on the health care industry. The ACA is expected to expand coverage for the uninsured while at the same time containing overall healthcare costs. With regard to pharmaceutical products, among other things, the ACA is expected to expand and increase industry rebates for drugs covered under Medicaid programs and make changes to the coverage requirements under the Medicare Part D program. We cannot predict the impact of the ACA on pharmaceutical companies, as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions which has not yet occurred. In addition, some members of the U.S. Congress have been seeking to overturn at least portions of the legislation and we expect they will continue to review and assess this legislation and alternative health care reform proposals. Any legal challenges to the ACA, as well as Congressional efforts to repeal the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.
In addition, in some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the United States and generally tend to be significantly lower.
Legal Proceedings
From time to time, we are involved in various legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, operating results or financial condition.
Facilities
Our corporate headquarters and clinical development operations are located in Los Angeles, California, where we lease and occupy approximately 1,712 square feet of office and storage space. On September 1, 2013, we executed a new two-year lease agreement for this space ending September 30, 2015, which calls for a minimum monthly rent of approximately $5,000 and an annual increase of 3%. We believe that our facility is suitable and adequate for our current needs.
Employees
As of January 23, 2015, we had five employees, all of whom were full time employees. None of our employees is represented by a labor union, and we consider our relationship with our employees to be good.
MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information about our executive officers and directors as of the date of this prospectus:
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Name
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Age
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Position(s)
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Executive Officers:
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Michael D. Step
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55
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Chief Executive Officer and Director
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Samuel O. Lynn
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47
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Chief Financial Officer
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Andrew J. Ritter
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32
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President and Director
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Ira E. Ritter
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65
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Executive Chairman, Chief Strategic Officer and Director
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Non-Employee Directors:
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Noah Doyle
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47
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Director
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Matthew W. Foehr
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42
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Director
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Executive Officers
Michael D. Step
became our Chief Executive Officer on October 1, 2014. He has served as a director of the Company since 2012. Mr. Step has over 20 years of business development and corporate development experience in the pharmaceutical industry. Prior to joining the Company as its Chief Executive Officer, Mr. Step served as Senior Vice President of Corporate Development at Santarus, Inc., or Santarus, and a member of its executive committee, from 2005 to January 2014, when Santarus was sold to Salix Pharmaceuticals, Ltd. At Santarus, Mr. Step was responsible for corporate development activities. Prior to joining Santarus, he served as Vice President, Corporate Development for Amylin Pharmaceuticals, Inc., or Amylin, from 2000 to 2005. In this capacity, he was responsible for leading corporate development activities, including product licensing, strategic planning, and mergers and acquisitions evaluations. Before joining Amylin, Mr. Step served as Senior Director, Business Development at Dura Pharmaceuticals, Inc., or Dura Pharmaceuticals, from 1997 to 2000. In this position, his duties included licensing of marketed pharmaceutical products. Prior to joining Dura Pharmaceuticals, he served in corporate development and strategic planning at Hoffmann-La Roche, from 1996 to 1997, and held various sales and management roles at Roche Labs, from 1994 to 1996, and Syntex Labs, from 1992 to 1994. Mr. Step holds a B.A. in political science from Vanderbilt University and a M.B.A. from the University of Southern California.
Qualifications
: We believe that Mr. Step is well qualified to serve on our board of directors and as Chief Executive Officer of the Company due to his over 20 years’ experience in the pharmaceutical industry, serving in senior leadership roles within public pharmaceutical companies including in the gastrointestinal disease segment. Mr. Step has served in various executive management positions in sales and sales management, many aspects of pharmaceutical commercialization, strategic planning, business development and licensing providing both strategic and operational vision and guidance. His extensive experience gives him valuable insight into our industry as well as seasoned business judgment.
Samuel O. Lynn
became our Chief Financial Officer in September of 2014. Mr. Lynn is currently a managing partner of Chord Advisors, LLC, an advisory firm that provides targeted financial solutions to public and pre-IPO small and mid-sized companies. From 2007 to 2014, Mr. Lynn was the Americas Director of Accounting Policy for Goldman Sachs Group, Inc. Mr. Lynn held a similar position with UBS AG from 2005 to 2007. From 1996 to 2005, Mr. Lynn was an audit professional with KPMG LLP, last serving as an audit partner in the firm’s U.S. national office. While at KPMG, Mr. Lynn also served a two-year fellowship at the Financial Accounting Standards Board. Prior to joining KPMG in 1996, Mr. Lynn was an audit manager with Ernst & Young in their Houston, Texas office. Mr. Lynn earned a Bachelor of Accountancy from the University of Oklahoma and is a CPA in New York State.
Andrew J. Ritter
founded the Company in March 2004 and has served as its President and Chief Executive Officer since that time, until relinquishing the role of Chief Executive Officer to Mr. Step in October 2014. Mr. Ritter has also been a member of our board of directors since he founded the Company in 2004. Mr. Ritter has been actively studying the field of lactose intolerance for over 15 years and currently
is an inventor on six patents and over a dozen pending patent applications. Since 2010, Mr. Ritter has also acted as a managing partner of Stonehenge Partners, a private investment fund which provides working capital and executive leadership to a variety of businesses and industries including: real estate, technology, biotechnology, entertainment and service businesses. Mr. Ritter is also a guest lecturer of entrepreneurship at various graduate and undergraduate schools throughout Los Angeles including: Marshall School of Business, University of Southern California, Anderson School of Business, University of California of Los Angeles and Pepperdine University Graziadio School of Business and Management. Mr. Ritter served as a Los Angeles City Commissioner from 2000 to 2002. He holds a B.A. in Political Science and a minor in Business from the University of Southern California and was a member of the 2002 Pac-10 Championship baseball team. He graduated from the Stanford Graduate School of Business’ Executive Education on Influence and Negotiation Strategies.
Qualifications
: We believe that Mr. Ritter is well qualified to serve on our board of directors due to his over 15 years of research experience working in lactose intolerance and digestive diseases. Having founded the Company and invented Lactagen
™
, Mr. Ritter has an in depth knowledge of the Company, and provides senior leadership on the clinical and product development matters facing the Company. Mr. Ritter also brings to the board of directors an extensive scientific and operational background gained previously at Ritter Natural Sciences and over the years at Ritter Pharmaceuticals, Inc.
Ira E. Ritter
has served as our Co-Founder, Chief Strategic Officer and Executive Chairman of the board of directors since 2004. Mr. Ritter has extensive experience creating and building diverse business enterprises and has provided corporate management, strategic planning and financial consulting for a wide range of market segments. Since 2010, Mr. Ritter has also acted as a managing partner of Stonehenge Partners. Mr. Ritter served as President and Vice Chairman of Quality King, Inc., a national wholesale distributor of healthcare products, from 1992 to 2000. From 1998 to 2001, he served as President and Chairman of Rockwood Investments Inc., a business he developed which produced private label health and beauty products for major national retailers, including GNC and K-Mart. He also served as Chairman of ON-TV, a division of Oak Industries, Inc., from 1982 to 1985, where he managed the television division initiating exclusive broadcasts of Los Angeles, Chicago, and New York professional baseball, basketball, and hockey games. During this tenure, he produced the first televised home shopping program and directed development of the largest “pay-per-view” channel system for its time. Mr. Ritter served on the board of directors for Martin Lawrence Art Galleries from 1980 to 1985 helping take it public on The New York Stock Exchange. During his 20 years as a publisher, he produced monthly national consumer magazines focused on health & fitness, women’s issues and the environment. Mr. Ritter also has a long history of public service that includes appointments by three Governors to several State of California Commissions including eight years served as Commissioner on the California Prison Industry Authority. He has guest lectured at University of Southern California Marshall School of Business and Pepperdine University Graziadio School of Business where he also serves as an advisory board member to Pepperdine’s Graduate School of Education and Psychology, Social Entrepreneurship and Change Program. He received his BA in Political Science from California State University, Northridge. Presently he serves on the board of directors for Vitavis Laboratories. In 1981, Mr. Ritter was honored with the City of Hope’s Man of the Year award.
Qualifications
: We believe that Mr. Ritter is well suited to serve on our board of directors due to his over 40 years’ experience overseeing daily operations of diverse business enterprises, and his managing public as well as private companies. Mr. Ritter provides our board of directors with extensive background in operational and strategic planning, as well as general executive and leadership expertise. Mr. Ritter has served on the boards of several companies during his career.
Non-Employee Directors
Noah Doyle
has served as a director of the Company since September 2008. He has been an entrepreneur and investor for over 20 years. Mr. Doyle is the managing director of Javelin Venture Partners GP, LLC, the general partner of Javelin Venture partners GP, L.P., which is the general partner of Javelin and the manager of Javelin I. Prior to forming the first Javelin entities in 2008, Mr. Doyle supported over a dozen start-ups as an angel investor, including Keyhole, Inc., or Keyhole, (acquired by Google Inc. in 2004), Cantametrix, Inc. (acquired by Gracenote, Inc. in 2002), Amae Software (acquired by Verint Systems, Inc. in 2006), Nuvon, Inc., Aquea Scientific Corporation, Emdigo Inc., Magnacash Inc. (acquired by Yaga, Inc.
in 2001), and i-mint India. Mr. Doyle most recently directed the enterprise product line for Google’s geospatial products, Google Earth and Google Maps, from 2004 to 2007. From 2002 to 2004 he managed the Sales and Corporate Development functions at Keyhole, which created the first Web hosted digital earth model. Prior to Keyhole, Mr. Doyle helped establish the Internet loyalty rewards marketplace as a co-founder of MyPoints.com, or MyPoints, the largest Internet loyalty program with over 6 million active members, where he led product management and business development functions from the company’s inception in 1996 through its initial public offering and subsequent acquisition by United Airlines in 2002. Prior to joining MyPoints, Mr. Doyle was based in Tokyo where he managed overseas sales and marketing for the OEM channel of Matsushita’s (Panasonic) communications equipment subsidiary in Japan, from 1990 to 1994. He was chairman of the management board of the University of California, Berkeley’s campus bookstore, a $17 million retail operation, and also held product management and operations management roles at IBM/Rational (Pure Atria) and Oracle, from 1989 to 1990. Mr. Doyle holds M.B.A. and B.A. Economics degrees, as well as certificates in Management of Technology and Global Management from University of California — Berkeley.
Qualifications
: We believe that Mr. Doyle is well suited to serve on our board of directors due to his over 20 years of experience as an entrepreneur and investor. Mr. Doyle has experience as a venture capitalist building and serving on the boards of many public and private emerging companies in leadership roles providing guidance on finance, development and operational growth. Mr. Doyle holds an M.B.A, as well as certificates in Management of Technology and Global Management from University of California — Berkeley.
Matthew W. Foehr
has served as a director of the Company since February 1, 2015. He currently serves as President and Chief Operating Officer at Ligand Pharmaceuticals Incorporated. Prior to joining Ligand in 2011, Mr. Foehr was Vice President and Head of Consumer Dermatology R&D, as well as Acting Chief Scientific Officer of Dermatology, in the Stiefel division of GlaxoSmithKline, or GSK. Following GSK's acquisition of Stiefel in 2009, Mr. Foehr led the R&D integration of Stiefel into GSK. At Stiefel Laboratories, Inc., Mr. Foehr served as Senior Vice President of Global R&D Operations, Senior Vice President of Product Development & Support, and Vice President of Global Supply Chain Technical Services. Prior to Stiefel, Mr. Foehr held various executive roles at Connetics Corporation including Senior Vice President of Technical Operations and Vice President of Manufacturing. Currently, he is a member of the board of directors of Viking Therapeutics Inc. Mr. Foehr is the author of multiple scientific publications and is a named inventor on numerous U.S. patents. He received his Bachelor of Science degree in Biology from Santa Clara University.
Qualifications
: We believe that Mr. Foehr is well suited to serve on our board of directors due to his more than 20 years of experience in the pharmaceutical industry and his experience managing global operations and research and development programs.
Board Observer
Daniel A. Nathanson
,
Ph.D. MBA
, is an entrepreneur, executive, investor, consultant and educator. He has a 25-year record of success in building businesses, creating financial value and helping entrepreneurs succeed. Since 2008 he has been a visiting assistant professor at the UCLA Anderson School of Management where he teaches Small Business Management, Business Plan Development and is a Faculty Advisor in the AMR, GAP and SMR programs. Dr. Nathanson holds a Ph.D. from the Wharton School of the University of Pennsylvania, a MBA from New York University’s Graduate School of Business and a BA from Washington University in St. Louis, Missouri.
Medical Advisory Board
Dennis Savaiano, Ph.D.
, Professor of Foods and Nutrition and Former Dean at Purdue University, has researched lactose intolerance for the past 20 years, where he has attempted to identify the dietary factors that can improve lactose tolerance. Formerly, he served as the associate dean and assistant director of the Agricultural Experiment Station Human Ecology at the University of Minnesota. Dr. Savaiano is a native Californian with degrees from Claremont McKenna College (BA in Biology) and the University of California at Davis (MS and PhD in Nutrition). He was a Professor in the Department of Food Science and Nutrition at the University of Minnesota from 1980 through 1995, and moved to Purdue University in 1995.
W. Allan Walker, M.D.
, Director of the Division of Nutrition at Harvard Medical School, has a longstanding interest and commitment to nutrition research, particularly on the role of nutritional factors in maintaining the integrity of the intestinal mucosal barrier to host defense during the perinatal period. He was the first recipient of the Conrad Taff Professorship in Nutrition at Harvard Medical School in 1990. The research efforts of his laboratory have contributed substantially to a better understanding of the role of breast milk and its inherent growth factors on the development of the gastrointestinal tract and the role of short and long term malnutrition on the integrity of the mucosal barrier to host defense against bacterial colonization and against the uptake of macromolecules (antigens and toxins) which may result in neonatal and childhood intestinal disease states (necrotizing enterocolitis and gastrointestinal allergy). He served for six years on the Committee of Nutrition of the American Academy of Pediatrics (1977 – 1983) and received the Nutrition Research Award (Borden Award) of the American Academy of Pediatrics in 1984 and the Hugh Butt Award for Excellence in Clinical Nutrition Research from the American Gastroenterologic Association in 1998. He has also served on Nutrition study sections at the NICHD and NIDDK institutes and the Advisory Council of NIDDK at NIH and recently served as a member of the task force to establish a five-year nutrition research plan at NICHD. Dr. Walker is the author of 12 textbooks and over 500 research and review articles.
Byron L. Cryer, M.D.
, Professor of Medicine in the Division of Digestive and Liver Diseases and an Associate Dean at the University of Texas Southwestern Medical Center at Dallas and the North Texas VA Health Care System, is active in the gastroenterology professional associations and was an associate chairman of the Esophagus, Stomach, and Duodenum section of the American Gastroenterological Association. His clinical interests are in general gastroenterology. Dr. Cryer’s specific areas of interest are acid-peptic diseases of the upper gastrointestinal tract. His primary research interest has been in the pathogenesis of peptic ulcer disease. His research focus has been clinically oriented in that he has exclusively studied the pathophysiology of these processes in humans. Dr. Cryer has distinguished himself as an internationally recognized clinical investigator and thought leader in the field of the gastrointestinal adverse effects of medications. Most of this focus has been to study the gastrointestinal consequences of aspirin and the non-steroidal anti-inflammatory drugs (NSAIDS). Among the contributions which Dr. Cryer has made to the area of medication-induced gastrointestinal disease, his most recent contributions have been in the evaluation of COX-2 specific inhibitors as a strategy to improve the gastrointestinal safety of NSAIDS. Additionally, he has regulatory experience having served a five year term as a member of the FDA Advisory Committee for Gastrointestinal Drugs and as a Special Government Consultant to the Center for Drug Evaluation Research in Gastrointestinal Drugs. Dr. Cryer holds an M.D. degree from the Baylor college of Medicine and a bachelor’s degree from Harvard University. Dr. Cryer completed his gastroenterology fellowship training at the University of Texas Southwestern Medical Center.
Todd Klaenhammer, Ph.D.
, Director of the Southeast Dairy Foods Research Center and Distinguished University Professor and William Neal Reynolds Professor Food Microbiology, Genetics, Genomics, Bioprocessing and Fermentation at North Carolina State University, has directed research programs on the genetics of lactic acid bacteria used as probiotics or as starter cultures for food bioprocessing and biotechnology applications for thirty years. He is a fellow in the American Academy of Microbiology, the Institute of Food Technologists, the American Dairy Science Association and the American Association for the Advancement of Science. In 2001, he was elected into the National Academy of Sciences.
Warren Grundfest, M.D., FACS
, Professor Department of Bioengineering, Electrical Engineering and Surgery at University of California, Los Angeles, currently serves as a professor in the department of bioengineering, electrical engineering and surgery at UCLA. In 2008, he was selected as one of 100 notable people in the medical device industry by MDDI magazine published by Cannon Communications. He has also served as a consultant to the FDA Office of Device Evaluation and Office of Science and Engineering. In 1995, Dr. Grundfest was appointed as a research professor of biomedical engineering at the University of Southern California and as a visiting associate in mechanical engineering at California Institute of Technology (Caltech). Dr. Grundfest served as director of the Cedars-Sinai Laser Research and Technology Development Program from 1989 to 2001, holding the Dorothy and E. Philip Lyon Chair in Laser Research. Dr. Grundfest was appointed assistant director of surgery and assistant clinical professor of surgery at UCLA in 1987. Dr. Grundfest received his MD degree from Columbia University, College of Physicians and Surgeons and trained in General Surgery at UCLA and Cedars-Sinai Medical Center.
Harry Greene, M.D.
, Professor Emeritus of Pediatrics and Biochemistry/Nutrition at Vanderbilt School of Medicine, served as chief, Division of Pediatric Gastroenterology/Nutrition and director of the NIH sponsored Clinical Nutrition Research Unit at Vanderbilt. He is currently Visiting Professor of Medicine (Endocrinology) at the University of Kentucky and has served on multiple advisory boards for the NIH. He is a past President of the American Society of Clinical Nutrition and the North American Society of Pediatric Gastroenterology, Nutrition and Liver Disease. He has authored over 200 publications in medical journals and continues to consult on issues of obesity management and nutrition. In 1993, Dr. Greene moved to the private sector first as senior director of Nutritional Sciences for Bristol Myers Squibb/Mead Johnson and later as vice president and medical director for Unilever/Slim-Fast Foods Company, West Palm Beach, FL. He retired from Unilever in 2003.
Roger Clemens, Ph.D.
, Adjunct Professor in Pharmacology and Pharmaceutical Sciences at University of Southern California’s School of Pharmacy, is one of the world’s leading experts in human nutrition. Dr. Clemens joined the USC School of Pharmacy after serving as the Scientific Advisor for Nestlé USA for more than 20 years. Dr. Clemens spent much of his career in industry working as scientific advisor for Carnation/Nestlé USA from 1978 – 1999. He has published more than 30 original manuscripts and participated in more than 70 invited lectures on the topics of food science and nutrition. Dr. Clemens has served as an expert panel member for the FDA, International Food Information Council, California Dairy Council, and the Life Sciences Research Organization. Dr. Clemens is an active leader and professional member of the Institute of Food Technologists. He is also a member of the American Institute of Nutrition and a Fellow of the American College of Nutrition. Dr. Clemens holds both doctorate and master’s degrees of Public Health in Nutrition from UCLA.
Chris Landon, M.D.
, Director of Pediatrics at Ventura County Medical Center and Executive Director of the Landon Research Institute in California, has pioneered device development in the area of pediatric pulmonary medicine. He established a CCS certified Level II Intensive Care Nursery and Perinatal Unit at Sequoia District Hospital and a comprehensive program of inpatient and outpatient medical homes for children in Ventura County. Additionally, he established a program of nutritional research in cystic fibrosis at Children’s Hospital at Stanford, including a microsample lab for fat-soluble vitamins and gas chromatography lab for essential fatty acids. Dr. Landon has served on a variety of medical and scientific advisory boards including the Pediatric Advisory Committee, the American Medical Association, the American Federation of Clinical Research and the California Medical Association. He received his medical degree from the University of Southern California and completed his fellowship at Stanford University.
John L. Sherman, M.D.
, Internal Medicine and Pulmonary Diseases at Cedars Sinai Medical Center, has been a staff physician at Cedars Sinai Medical Center since 1991 and currently serves as a member of the Medical Education Committee. He was a member of the Risk Management Committee from 1994 – 2004. Dr. Sherman has been a faculty instructor at UCLA in both Pathophysiology of Respiratory Disease and Fundamentals of Clinical Medicine. He is currently an associate clinical professor of medicine at UCLA. Dr. Sherman was Resident of the Year for UCLA Department of Medicine in 1976. He was a Fellow at the American College of Chest Physicians in 1981 and in 1986 was a Fellow at the American College of Physicians.
Composition of our Board of Directors
Our board of directors currently consists of five members, two of whom are non-employee directors. Our directors hold office until their successors have been elected and qualified or until the earlier of their death, resignation or removal. There are no family relationships among any of our directors or executive officers, other than Ira and Andrew Ritter, who are father and son.
Our restated by-laws provides that the authorized number of directors comprising our board of directors shall be fixed, from time to time, by a majority of the total number of directors.
Director Independence
Under Rules 5605 and 5615 of NASDAQ’s continued listing requirements, a majority of a listed company’s board of directors must be comprised of independent directors, subject to certain exceptions and phase-in rules. In addition, NASDAQ’s continued listing requirements require that, subject to certain
exceptions and phase-in rules, each member of a listed company’s audit, compensation and governance and nominating committees must be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act (subject to certain phase-in rules). Under Rule 5605(a)(2) of NASDAQ’s continued listing requirements, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, our board of directors has determined that only Noah Doyle and Matthew Foehr are independent under the applicable rules and regulations of the NASDAQ Stock Market. In making such determinations, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining their independence.
The phase-in rules contained in Rule 5615(b) of NASDAQ’s continued listing rules (and in Rule 10A-3(b)(1)(iv)(A) of the Exchange Act with respect to audit committees) provide that a company listing in connection with its initial public offering will be permitted to phase in its compliance with the committee composition requirements as follows: (1) one member must satisfy the independence requirement at the time of listing; (2) a majority of members must satisfy the independence requirement within 90 days of listing; and (3) all members must satisfy the independence requirement within one year of listing. Furthermore, a company listing in connection with its initial public offering has twelve months from the date of listing to comply with the majority independent board requirement rules.
We intend to rely on NASDAQ’s phase-in rules for achieving board and committee independence following a company’s initial public listing. Accordingly, we plan to have a board of directors comprised of a majority of independent directors and an audit committee, compensation committee and governance committee comprised solely of independent directors within one year of our listing.
Board Diversity
Upon completion of our initial public offering, our nominating and governance committee will be responsible for reviewing with the board of directors, on an annual basis, the appropriate characteristics, skills and experience required for the board of directors as a whole and its individual members. In evaluating the suitability of individual candidates (both new candidates and current members), the nominating and corporate governance committee, in recommending candidates for election, and the board of directors, in approving (and, in the case of vacancies, appointing) such candidates, will take into account many factors, including the following:
•
diversity of personal and professional background, perspective, experience, age, gender, ethnicity and country of citizenship;
•
personal and professional integrity and ethical values;
•
experience in one or more fields of business, professional, governmental, scientific or educational endeavors, and a general appreciation of major issues facing public companies similar in scope and size to us;
•
experience relevant to our industry or with relevant social policy concerns;
•
relevant academic expertise or other proficiency in an area of our operations;
•
objective and mature business judgment and expertise; and
•
any other relevant qualifications, attributes or skills.
Committees of the Board of Directors
Our board of directors has established an audit committee and a compensation committee. Upon the closing of this offering, our board of directors will establish a nominating and corporate governance committee. Each committee will operate under a charter, to be approved by our board of
directors in connection with this offering. Following the closing of this offering, copies of each committee’s charter will be posted on the Investor Relations section of our website, which is located at
www.ritterpharmaceuticals.com
. The composition and function of each of these committees are described below.
Audit Committee
. NASDAQ rules require that each listed company must have an audit committee of at least three members, each of whom must: (i) be “independent” as defined under NASDAQ Rule 5605(a)(2) (subject to limited exceptions, including the phase-in rules described above); (ii) meet the criteria for independence set forth in Rule 10A-3(b)(1) under the Exchange Act (subject to certain exemptions in including the phase-in rules described above); (iii) not have participated in the preparation of the financial statements of the company or any current subsidiary of the company at any time during the past three years; and (iv) be able to read and understand fundamental financial statements, including a company’s balance sheet, income statement, and cash flow statement. Additionally, each company must certify that it has, and will continue to have, at least one member of the audit committee who has past employment experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual’s financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.
The current members of our audit committee are Noah Doyle and Ira Ritter. Our board of directors has determined that only Noah Doyle is an independent director under NASDAQ’s continued listing requirements and Rule 10A-3 of the Exchange Act. As noted above, we intend to rely on the phase-in rules for achieving audit committee independence following our initial public listing. Accordingly, we intend that a majority of the members of our audit committee will satisfy NASDAQ independence requirement within 90 days of listing and all members of our audit committee will satisfy NASDAQ independence requirement within one year of listing.
Under the audit committee charter our board of directors intends to adopt in connection with this offering, our audit committee will be authorized to take the following actions, among others:
•
approve and retain the independent auditors to conduct the annual audit of our financial statements;
•
review the proposed scope and results of the audit;
•
review and pre-approve audit and non-audit fees and services;
•
review accounting and financial controls with the independent auditors and our financial and accounting staff;
•
review and approve transactions between us and our directors, officers and affiliates;
•
recognize and prevent prohibited non-audit services;
•
establish procedures for complaints received by us regarding accounting matters;
•
oversee internal audit functions, if any; and
•
prepare the report of the audit committee that the rules of the Securities and Exchange Commission require to be included in our annual meeting proxy statement.
Compensation Committee
. NASDAQ rules require that each listed company have a compensation committee comprised of at least two members, each of whom is independent under NASDAQ’s general director independence requirements and meets the enhanced independence requirements for compensation committee members set forth in NASDAQ Rule 5605(d)(2)(A).
Noah Doyle is currently the sole member of our compensation committee. Our board of directors has determined that Noah Doyle is an independent director under the NASDAQ rules regarding independence (including the enhanced requirements for compensation committee members). As noted above, we intend to rely on the phase-in rules for achieving compensation committee independence following our initial public
listing. Accordingly, we intend to add at least another director to our compensation committee who will satisfy NASDAQ independence requirement within 90 days of listing and a third member who will satisfy the NASDAQ independence requirement within one year of listing.
Under the compensation committee charter our board of directors intends to adopt in connection with this offering, our compensation committee will be authorized to take the following actions, among others:
•
review and recommend the compensation arrangements for management, including the compensation for our president and chief executive officer;
•
establish and review general compensation policies with the objective to attract and retain superior talent, to reward individual performance and to achieve our financial goals;
•
administer our stock incentive plans; and
•
prepare the report of the compensation committee that the rules of the Securities and Exchange Commission require to be included in our annual meeting proxy statement.
Nominating and Corporate Governance Committee
. NASDAQ does not require a separate nominations committee. However, if a company does not have a separate committee, certain nominating decisions must be made by a majority of the independent directors of the board. We intend to establish a nominating and corporate governance committee effective upon the closing of this offering.
Under the nominating and corporate governance committee charter our board of directors intends to adopt in connection with this offering, our nominating and corporate governance committee will be authorized to take the following actions, among others:
•
identify and nominate members of the board of directors;
•
develop and recommend to the board of directors a set of corporate governance principles applicable to our company; and
•
oversee the evaluation of our board of directors.
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee has at any time been an employee of ours. None of our executive officers serves as a member of another entity’s board of directors or compensation committee that has one or more executive officers serving as a member of our board of directors or compensation committee.
Code of Business Conduct and Ethics
We intend to adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics will be available on our website at
www.ritterpharmaceuticals.com
upon the completion of this offering. Any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
Board of Directors Leadership Structure
Our Chief Strategic Officer also serves as the Executive Chairman of our board of directors. Our board of directors does not have a lead independent director. Our board of directors has determined its leadership structure is appropriate and effective for us at this time, given our stage of development.
Board’s Role in Risk Oversight
Risk is inherent with every business, and how well a business manages risk can ultimately determine its success. We face a number of risks, including risks relating to product candidate development, technological uncertainty, dependence on collaborative partners and other third parties, uncertainty regarding patents and proprietary rights, comprehensive government regulations, having no commercial manufacturing experience, marketing or sales capability or experience and dependence on key personnel, as more fully
discussed under “Risk Factors” in this prospectus. Management is responsible for the day-to-day management of risks we face, while our board of directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.
Our board of directors is actively involved in oversight of risks that could affect us. This oversight is conducted primarily through committees of the board of directors, but the full board of directors has retained responsibility for general oversight of risks. Our board of directors satisfies this responsibility through full reports by each committee chair regarding the committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within our company as our board of directors believes that full and open communication between management and the board of directors is essential for effective risk management and oversight.
Limitation of Directors’ and Officers’ Liability and Indemnification
The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to specified conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our restated certificate of incorporation which will be effective upon the completion of this offering will limit the liability of our directors to the fullest extent permitted by Delaware law.
We have obtained director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their services to us. Our restated certificate of incorporation and restated bylaws which will be effective upon the completion of this offering will also provide that we will indemnify and advance expenses to any of our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature. We will repay certain expenses incurred by a director or officer in connection with any civil, criminal, administrative or investigative action or proceeding, including actions by us or in our name. Such indemnifiable expenses include, to the maximum extent permitted by law, attorney’s fees, judgments, fines, ERISA excise taxes, penalties, settlement amounts and other expenses reasonably incurred in connection with legal proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest.
We have entered into or plan to enter into indemnification agreements with each of our directors and certain of our officers, the form of which is attached as an exhibit to the registration statement of which this prospectus is a part. These agreements provide that we will, among other things, indemnify and advance expenses to our directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by us arising out of such person’s services as our director or officer, or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and officers.
Such limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable.
There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification.
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The following table sets forth the compensation paid or accrued during the fiscal year ended December 31, 2014 to our named executive officers for each of those years, who are comprised of (1) our principal executive officer for such year, and (2) our next two highest compensated executive officers other than the principal executive officer (whose compensation exceeded $100,000).
|
Name and Principal Position
|
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Option
Awards
(1)
($)
|
|
|
All Other
Compensation
($)
|
|
|
Total
($)
|
|
|
Michael D. Step
Chief Executive Officer
|
|
|
|
|
2014
|
|
|
|
|
$
|
90,000
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2,332,410
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
2,422,410
|
|
|
|
Andrew J. Ritter
President
|
|
|
|
|
2014
|
|
|
|
|
$
|
204,070
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
1,253,638
|
|
|
|
|
$
|
7,428
|
|
|
|
|
$
|
1,465,136
|
|
|
|
Ira E. Ritter
Executive Chairman and Chief Strategic Officer
|
|
|
|
|
2014
|
|
|
|
|
$
|
182,922
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
1,253,638
|
|
|
|
|
$
|
13,082
|
|
|
|
|
$
|
1,449,642
|
|
|
(1)
Represents the aggregate grant date fair value of awards computed in accordance with FASB ASC Topic 718.
Narrative to Summary Compensation Table
Letter Agreement with Michael D. Step
On December 2, 2014, we entered into a letter agreement, or the Step Letter Agreement, with Mr. Step, our current Chief Executive Officer, setting forth the terms of his employment. The Step Letter Agreement provides that Mr. Step will be entitled to an annual base salary of $360,000. Pursuant to the Step Letter Agreement, Mr. Step was also entitled to receive three stock options.
The first two options entitle Mr. Step to purchase 4,622,741 and 524,646 shares of common stock of the Company, respectively, for an exercise price of $0.82 per share. Each of these options is immediately exercisable in full as of the date of the grant, with 44/48
ths
of the total number of shares covered by each option subject to a right of repurchase by the Company upon termination of Mr. Step’s employment with us for any reason. This right of repurchase will lapse over a period of 44 months, with 1/44
th
of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination of the employment of Mr. Step by us without Cause or by Mr. Step with Good Reason and upon a Termination upon a Change in Control Agreement.
The third option will only become exercisable if by October 1, 2015 we have raised a minimum of $15,000,000 in one or more public and/or private equity financing transactions during the prior twelve (12) month period. In the event we close such a qualified financing, or a Qualified Financing, the third option will become immediately exercisable for such number of shares of common stock as will, together with the shares subject to the first option, represent 7.5% of the shares of common stock deemed to be outstanding on a fully-diluted basis after giving effect to the issuance of the third option. In the event we do not close a Qualified Financing on or before October 1, 2015, the third option will terminate in its entirety and have no further force or effect. Seventy-five percent (75%) of the shares subject to the third option are subject to a right of repurchase by us upon termination of Mr. Step’s employment for any reason. This right of repurchase will lapse with respect to 1/36
th
of the total number of shares subject to the right of repurchase on the first day of each month following the date on which the third option first becomes exercisable. In addition, the right of repurchase will lapse in its entirety upon the earlier of a termination of Mr. Step’s employment by us without Cause, termination by Mr. Step with Good Reason and upon a termination of Mr. Step’s employment upon a Change in Control.
Under the terms of the Executive Severance & Change in Control Agreement, or the Step Severance Agreement, Mr. Step will be entitled to receive certain payments in the event his employment is terminated under certain scenarios. See “Payments Due Upon Termination of Employment or a Change in Control” below for additional information.
For purposes of the Step Letter Agreement, the terms “Cause,” “Good Reason,” and “Termination upon a Change in Control” each have the meanings ascribed to such terms in the Executive Severance & Change in Control Agreement described below.
Executive Compensation Plan
On September 25, 2013, our board of directors approved the Executive Compensation Plan setting forth the compensation to be paid to Andrew Ritter and Ira Ritter for their contributions to the Company.
Base Salary
. Pursuant to the terms of the Executive Compensation Plan, Andrew Ritter’s salary is $225,000 per year and Ira Ritter’s salary is $210,000 per year, which shall be subject to adjustment from time to time by the board of directors.
Option Grant
. Andrew and Ira Ritter each received an option to purchase up to 350,000 shares of the Company’s common stock (each referred to in this section as an “Executive Option Grant”) pursuant to the 2009 Stock Plan, which options will vest as described below. On December 2, 2014, they also each received an option to purchase up to 3,091,905 shares of the Company’s common stock. See “Outstanding Equity Awards at Fiscal Year-End” for additional information regarding these options.
Car Allowance
. Under the Executive Compensation Plan, Andrew Ritter is entitled to an annual car allowance of up to $8,400 and Ira Ritter is entitled to an annual car allowance of up to $12,000. Any car allowance claimed by Andrew or Ira Ritter will result in an automatic reduction in such person’s base salary then in effect.
Clinical Trial and Fund Raising Bonus Opportunities
. Under the Executive Compensation Plan, Andrew and Ira Ritter will be entitled to the following cash and equity payments upon the satisfaction of the events described below:
•
FDA Meeting Bonus Opportunities
. In April 2013, Andrew and Ira Ritter each received a one-time cash bonus of $10,000 for meeting with the FDA regarding RP-G28’s pathway to FDA approval. In addition, 16,875 shares under the Executive Option Grant vested and became exercisable as of September 25, 2013. An additional 8,125 shares vest ratably on a monthly basis beginning on September 30, 2013.
•
Clinical Trial Funding Commitment Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter are each entitled to receive a one-time cash bonus of $75,000 upon the Company’s receipt of a commitment by a third party to fund a Phase 2 or later clinical trial whether or not any such committed funds are paid directly to the Company; provided, however, that no such bonus may be paid at any time the Company has less than $2,000,000 in available cash. In addition, the Executive Compensation Plan provides that upon the satisfaction of this milestone, 35% of 75,000 shares of each of their Executive Option Grants will vest, with the balance of such 75,000 shares vesting in 36 equal monthly installments beginning on the last day of the following month.
•
Fundraising Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter are each entitled to receive (i) a one-time cash bonus of $50,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of $2,000,000 and (ii) a one-time cash bonus of $150,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012 and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of $10,000,000 (which such bonus will be reduced by any cash bonus paid under subsection (i)); provided, however, that no bonus under subsection (i) or (ii) may be paid at any time the Company has less than $2,000,000 in available cash. In addition, upon the satisfaction of the milestone described in subsection (i), 35% of 50,000 shares of each of their Executive Option Grants will vest, with the balance of the 50,000
shares vesting in 36 equal monthly installments beginning on the last day of the following month, and, upon satisfaction of the milestone described in subsection (ii), 35% of 100,000 shares of each of their Executive Option Grants will vest, with the balance of the 100,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
License Event Bonus Opportunities
. Pursuant to the terms of the Executive Compensation Plan, Andrew and Ira Ritter are each entitled to receive the following cash and equity bonus payments in connection with the closing of an exclusive license of RP-G28 and/or any future product candidate developed by the Company from time to time during the term of the Executive Compensation Plan by and/or any option to exclusively license such product candidate to a third party (referred to under the Executive Compensation Plan as a “License Event”) with a minimum upfront payment to the Company of $2,000,000:
•
A graduated cash bonus equal to (i) 5% of the Initial Period License Payment (as defined below) up to $5,000,000; (ii) 4% of the Initial Period License Payment in excess of $5,000,000 up to $10,000,000; and (iii) 3% of the Initial Period License Payment in excess of $10,000,000. In addition, upon the Company’s receipt of an Initial Period License Payment of more than $2,000,000, 35% of 325,000 shares of their Executive Option Grants will vest, with the balance of the 325,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
•
A cash bonus equal to 3% of any Annual Excess Milestone Payments (as defined below); provided, however that no such bonus may be paid at any time the Company has less than $1,000,000 in available cash. In addition, upon the Company’s receipt of an Annual Excess Milestone Payment, 35% of 50,000 shares of their Executive Option Grants will vest and become exercisable, with the balance of the 50,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
Notwithstanding any of the vesting provisions described above, the total potential number of shares under the Executive Option Grant that may vest will not exceed 350,000 and the Executive Option Grant will automatically terminate for any shares for which a vesting date or performance condition has not been met by September 25, 2015.
Any cash bonus payment to be made under the Executive Compensation Plan as described above, not made on or prior to its due date solely as a result of the Company’s failure to satisfy the minimum cash availability requirements set forth above on such due dates shall be made when sufficient cash becomes available, except that if sufficient cash remains unavailable for more than one year as of the date in which any such cash bonus payment is due, the payment of such cash bonus will not be made even if sufficient cash later becomes available.
For purposes of the Executive Compensation Plan, the term “
Initial Period License Payment
” means the aggregate amount in cash received by the Company (not including any amount placed in escrow or subject to earn-outs, contingencies or other deferrals or earmarked to pay or reimburse the Company for research and development activities) in respect of the License Event over a 24 month period beginning on the closing date of such License Event (which period is referred to therein as the “
Initial Period
”). The term “
Annual Excess Milestone Payments
” means the amount in cash in excess of $2,000,000 (not including any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals) that is received by the Company in respect of any Post-Closing Milestones (as defined below) in each 12-month period beginning on the expiration of the Initial Period. The term “
Post-Closing Milestones
” means any post-closing payouts set forth in the definitive transaction documentation executed in connection with a License Event; provided, however, that such amounts will not include any amounts that are determined by the board of directors to comprise all or any portion of any upfront payment made in connection with a License Event and any royalty payment based on product sales.
The Executive Compensation Plan provides that in the event that the Company enters into more than one License Event with respect to a single product candidate (
i.e.
, for a separate field of use), then the proceeds of any such additional License Event will be included with the proceeds of the original License Event for purposes of meeting any of the financial thresholds set forth above.
Multiple Offers for RP-G28
. Under the terms of the Executive Compensation Plan, receipt by the Company of more than one
bona
fide
term sheet for a proposed License Event with respect to RP-G28 will result in the payment of an additional 10% of any cash bonus earned as Clinical Trial and Fundraising Bonus or a License Event Bonus.
Severance
. Under the terms of the Executive Compensation Plan, Andrew and Ira Ritter will be entitled to receive certain payments in the event their employment is terminated under certain scenarios. See “Payments Due Upon Termination of Employment or a Change in Control” below for additional information.
2008 Stock Plan
Our 2008 Stock Plan permits us to grant non-statutory stock options, incentive stock options and restricted stock to our employees, directors and consultants; however, incentive stock options may only be granted to our employees. The maximum aggregate number of shares of common stock that may be issued under the 2008 Stock Plan is 14,630,034 shares, subject to adjustment due to the effect of any stock split, stock dividend, combination, recapitalization or similar transaction.
The 2008 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case, we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the recipients of any awards to be made under the 2008 Stock Plan, determine the number of shares of common stock to be covered by any award granted under the 2008 Stock Plan, determine the terms and conditions of any awards granted under the 2008 Stock Plan, and construe and interpret the terms of the 2008 Stock Plan and any awards granted thereunder.
Stock Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2008 Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated as nonstatutory stock options. The term of any stock option awarded under the 2008 Stock Plan will not exceed 10 years from the date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary, who we refer to as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided in the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as is determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who, at the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided that such shares have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares as to which such option may be exercised and provided that accepting such shares, in the sole discretion of the Administrator, will not result in any adverse accounting consequences to the Company), (5) consideration received by us under a cashless exercise program we have implemented in connection with the 2008 Stock Plan, or (6) such other consideration and method of payment for the issuance of shares to the extent permitted by applicable laws, or (7) any combination of the foregoing methods of payment.
Restricted Stock
. Restricted stock may be issued either alone, in addition to, or in tandem with other awards granted under the 2008 Stock Plan and/or cash awards made outside of the 2008 Stock Plan, at a purchase price determined by the Administrator. Any restricted stock granted under the 2008 Stock Plan will be subject to the terms and conditions of a restricted stock purchase agreement, which, unless the Administrator determines otherwise, will grant us a repurchase option according to terms the Administrator determines. The term of each restricted stock award will be no more than 10 years from the date of grant.
Under the 2008 Stock Plan, if an optionee ceases to be an employee, director, consultant, such optionee may exercise his or her option within 30 days of termination, or such longer period of time as specified in the option agreement, to the extent that the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement). Unless the Administrator provides otherwise, if, on the date of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified by the Administrator, the option will terminate, and the shares covered by such option will revert to the 2008 Stock Plan. Unless the Administrator provides otherwise, or except as otherwise required by applicable laws, vesting of options granted to employees, officers and directors will be suspended during any unpaid leave of absence. For purposes of incentive stock options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by us is not so guaranteed, then six months following the first day of such leave, any incentive stock option held by the optionee will be treated for tax purposes as a nonstatutory stock option.
If an optionee ceases to be an employee, director, consultant as a result of the optionee’s Disability (as defined in the 2008 Stock Plan), the optionee may exercise his or her option within six months of termination, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement). Unless the Administrator provides otherwise, if, on the date of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified, the option will terminate, and the shares covered by such option will revert to the 2008 Stock Plan.
If an optionee dies while an employee, director, consultant, the option may be exercised within six months following the optionee’s death, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement) by the optionee’s designated beneficiary; provided such beneficiary has been designated prior to optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the optionee, then such option may be exercised by the personal representative of the optionee’s estate or by the person(s) to whom the option is transferred pursuant to the optionee’s will or in accordance with the laws of descent and distribution. If, at the time of death, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2008 Stock Plan. If the option is not so exercised within the time specified, the option will terminate, and the shares covered by such option will revert to the 2008 Stock Plan.
If an option or restricted stock purchase right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an exchange program, the unpurchased shares that were subject to such award will become available for future grant or sale under the 2008 Stock Plan (unless the 2008 Stock Plan has terminated). However, shares that have actually been issued under the 2008 Stock Plan, upon exercise of either an option or restricted stock purchase right, will not be returned to the 2008 Stock Plan and will not become available for future distribution under the 2008 Stock Plan, except that if unvested shares of restricted stock are repurchased by us at their original purchase price, such shares will become available for future grant under the 2008 Stock Plan.
Unless determined otherwise by the Administrator, options and restricted stock purchase rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2008 Stock Plan, will adjust the number of and class of shares that may be delivered under the 2008 Stock
Plan and/or the number, class and price of shares covered by each outstanding option or stock purchase right; provided, however, that the Administrator will make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The board of directors may at any time amend, alter, suspend or terminate the 2008 Stock Plan, but must obtain stockholder approval of any amendment to the extent necessary and desirable to comply with applicable laws. No amendment, alteration, suspension or termination of the 2008 Stock Plan may impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee and the Administrator. The 2008 Stock Plan will continue in effect for a term of ten years from the later of (a) the effective date of the Plan or (b) the earlier of the most recent board or stockholder approval of an increase in the number of shares reserved for issuance under the 2008 Stock Plan.
2009 Stock Plan
Our 2009 Stock Plan permits us to grant non-statutory stock options, incentive stock options and stock purchase rights to our employees, outside directors and consultants; however, incentive stock options may only be granted to our employees. The maximum aggregate number of shares of common stock that may be issued under the 2009 Stock Plan is 500,000 shares, subject to adjustment due to the effect of any stock split, stock dividend, combination, recapitalization or similar transaction.
The 2009 Stock Plan is administered by either our board of directors or a committee of our board of directors, which in either case, we refer to as the Administrator. The Administrator has full authority and discretion to, among other things, determine the recipients of any awards to be made under the 2009 Stock Plan, determine the number of shares of common stock to be covered by any award granted under the 2009 Stock Plan, determine the terms and conditions of any awards granted under the 2009 Stock Plan, and construe and interpret the terms of the 2009 Stock Plan and any awards granted thereunder.
Stock Options
. Each option will be designated in the option agreement as either an incentive stock option or a nonstatutory stock option. Notwithstanding such designation, however, to the extent that the aggregate Fair Market Value (as defined in the 2009 Stock Plan) of the shares with respect to which an incentive stock option is exercisable for the first time by the optionee during any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $100,000, such options will be treated as nonstatutory stock options. The term of any stock option awarded under the 2009 Stock Plan shall not exceed 10 years from the date of grant. In the case of an incentive stock option granted to a person who, at the time the stock option is granted, owns stock representing more than 10% of the voting power of all classes of our stock or any parent or subsidiary of, who we refer to as a 10% Holder, the term of the option will be five years from the date of grant or such shorter period as may be provided in the option agreement. The per share exercise price for shares to be issued upon exercise of an option will be such price as is determined by the Administrator, but will be (i) in the case of an incentive stock option, (A) granted to an employee who, at the time of grant of such option, is a 10% Holder, no less than 110% of the Fair Market Value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the Fair Market Value per share on the date of grant; and (ii) in the case of a nonstatutory stock option, no less than 100% of the Fair Market Value per share on the date of grant. The consideration to be paid for the shares to be issued upon exercise of a stock option, including the method of payment, will be determined by the Administrator (and, in the case of an incentive stock option, will be determined at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note, (4) other shares (provided shares acquired directly from us (x) have been owned by the optionee for more than six months of the date of surrender and (y) have a Fair Market Value of the date of surrender equal to the aggregate exercise price of the shares as to which such option may be exercised), (5) consideration received by us under a cashless exercise program we have implemented in connection with the 2009 Stock Plan, or (6) any combination of the foregoing methods of payment.
Stock Purchase Rights
. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the 2009 Stock Plan and/or cash awards made outside of the 2009 Stock Plan, and will entitle the recipient to purchase shares of our common stock at a purchase price determined by the Administrator. Any stock purchase rights granted under the 2009 Stock Plan will be subject to the terms and conditions of a restricted stock purchase agreement, which, unless the Administrator determines otherwise, will grant us a repurchase option exercisable within 90 days of the
voluntary or involuntary termination of the purchaser’s service with us for any reason (including death or disability) at the original price paid by the purchase, which may be paid by us by cancellation of any indebtedness of the purchaser to us, and which right will lapse at such rate as the Administrator may determine.
Under the 2009 Stock Plan, if an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act), such optionee may exercise his or her option within 30 days of termination, or such longer period of time as specified in the option agreement, to the extent that the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement, and in the case of an incentive stock option, in no event later than the earlier of three months after the date of termination and the expiration of the term of the option as set forth in the option agreement). If, on the date of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2009 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified by the Administrator, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan. Unless the Administrator provides otherwise, vesting of options granted to employees, officers and directors will be suspended during any unpaid leave of absence. For purposes of incentive stock options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by us is not so guaranteed, then following the 91
st
day of such leave, any incentive stock option held by the optionee will cease to be treated as an incentive stock option and will instead be treated for tax purposes as a nonstatutory stock option.
If an optionee ceases to be an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act), as a result of the optionee’s Disability (as defined in the 2009 Stock Plan), the optionee may exercise his or her option within six months of termination, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement, and in the case of an incentive stock option, in no event later than the earlier of three months after the date of termination and the expiration of the term of the option as set forth in the option agreement). If, on the date of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2009 Stock Plan. If, after termination, the optionee does not exercise his or her option within the time specified by the Administrator, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If an optionee dies while an employee, director, consultant (or other permitted recipient under Rule 701 under the Securities Act), the option may be exercised within six months following the optionee’s death, or such longer period of time as specified in the option agreement, to the extent the option is vested on the date of termination (but in no event later than the expiration of the term of the option as set forth in the option agreement) by the optionee’s designated beneficiary; provided such beneficiary has been designated prior to optionee’s death in a form acceptable to the Administrator. If no such beneficiary has been designated by the optionee, then such option may be exercised by the personal representative of the optionee’s estate or by the person(s) to whom the option is transferred pursuant to the optionee’s will or in accordance with the laws of descent and distribution. If, at the time of death, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option will revert to the 2009 Stock Plan. If the option is not so exercised within the time specified above, the option will terminate, and the shares covered by such option will revert to the 2009 Stock Plan.
If an option or stock purchase right expires or becomes unexercisable without having been exercised in full, the unpurchased shares that were subject to such award will become available for future grant or sale under the 2009 Stock Plan (unless the 2009 Stock Plan has terminated). However, shares that have actually been issued under the 2009 Stock Plan, upon exercise of either an option or stock purchase right, will not be returned to the 2009 Stock Plan and will not become available for future distribution under the 2009 Stock Plan, except that if unvested shares of restricted stock are repurchased by us at their original purchase price, such shares will become available for future grant under the 2009 Stock Plan.
Unless determined otherwise by the Administrator, options and stock purchase rights may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner, and may be exercised only by the optionee during such person’s lifetime.
In the event that any dividend or other distribution (whether in the form of cash, shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of our shares or other securities, or other change in our corporate structure affecting the shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the 2009 Stock Plan, may (in its sole discretion) adjust the number of and class of shares that may be delivered under the 2009 Stock Plan and/or the number, class and price of shares covered by each outstanding option or stock purchase right; provided, however, that the Administrator will make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
The board of directors may at any time amend, alter, suspend or terminate the 2009 Stock Plan, but must obtain stockholder approval of any amendment to the extent necessary and desirable to comply with applicable laws. The 2009 Stock Plan will also be subject to approval by our stockholders prior to the later of (i) 12 months after the 2009 Stock Plan is adopted or (ii) the date of first grant of an option or stock purchase right to an employee, director or consultant (or other permitted recipient under Rule 701 under the Securities Act) in California. No amendment, alteration, suspension or termination of the 2009 Stock Plan may impair the rights of any optionee, unless otherwise mutually agreed in writing by the optionee and the Administrator.
2015 Equity Incentive Plan
We intend to adopt a new equity incentive plan prior to the offering.
Outstanding Equity Awards at Fiscal Year-End
The following table presents the outstanding equity awards held by each of the named executive officers as of December 31, 2014.
|
Name
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
|
|
Option
Exercise
Price
($)
|
|
|
Option
Expiration
Date
|
|
|
Michael D. Step
|
|
|
|
|
116,917
(1)
|
|
|
|
|
|
70,150
(1)
|
|
|
|
|
$
|
0.16
|
|
|
|
|
|
8/16/2022
|
|
|
|
|
|
|
4,622,741
(2)
|
|
|
|
|
|
—
|
|
|
|
|
$
|
0.82
|
|
|
|
|
|
12/2/2024
|
|
|
|
|
|
|
524,646
(3)
|
|
|
|
|
|
—
|
|
|
|
|
$
|
0.82
|
|
|
|
|
|
12/2/2014
|
|
|
|
|
|
|
—
|
|
|
|
|
|
(4)
|
|
|
|
|
$
|
0.82
|
|
|
|
|
|
12/2/2024
|
|
|
|
Andrew J. Ritter
|
|
|
|
|
24,097
(5)
|
|
|
|
|
|
325,903
(5)
|
|
|
|
|
$
|
0.1782
|
|
|
|
|
|
9/25/2023
|
|
|
|
|
|
|
150,000
(6)
|
|
|
|
|
|
—
|
|
|
|
|
$
|
0.82
|
|
|
|
|
|
12/2/2024
|
|
|
|
|
|
|
—
|
|
|
|
|
|
3,091,905
(7)
|
|
|
|
|
|
(7)
|
|
|
|
|
|
12/2/2024
|
|
|
|
Ira E. Ritter
|
|
|
|
|
24,097
(8)
|
|
|
|
|
|
325,903
(8)
|
|
|
|
|
$
|
0.1782
|
|
|
|
|
|
9/25/2023
|
|
|
|
|
|
|
150,000
(9)
|
|
|
|
|
|
—
|
|
|
|
|
$
|
0.82
|
|
|
|
|
|
12/2/2024
|
|
|
|
|
|
|
—
|
|
|
|
|
|
3,091,905
(10)
|
|
|
|
|
|
(10)
|
|
|
|
|
|
12/2/2024
|
|
|
(1)
This option was granted to Michael Step on August 16, 2012 and vests as follows: 25% of the shares became exercisable on June 25, 2013 and the remaining 75% of the shares will become exercisable in 36 equal monthly installments beginning on the last day of the first full month thereafter.
(2)
This option was granted to Michael Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the shares subject to this option, 4,237,513 shares are subject to a right of repurchase in favor of us at a price of $0.82 per share, which right expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or upon Mr. Step’s employment termination by us without Cause, subject to his continued employment with us (as described in the stock option award agreement).
(3)
This option was granted to Michael Step on December 2, 2014 and was immediately exercisable in full as of the date of grant. Of the shares subject to this option, 480,926 shares are subject to a right of
repurchase in favor of us at a price of $0.82 per share, which rights expires ratably over 44 months commencing January 1, 2015 and in full upon a change of control or upon Mr. Step’s employment termination by us without Cause, subject to his continued employment with us (as described in the stock option award agreement).
(4)
This option was granted to Michael Step on December 2, 2014. The total number of shares issuable under this option will be equal to the number of shares of common stock as will, together with the 4,622,741 shares subject to the option granted to Mr. Step on December 2, 2014, represent in the aggregate 7.5% of the shares of common stock deemed to be outstanding on a fully-diluted basis as of the date that we have raised in the aggregate a minimum of $15,000,000 in one or more private and/or public offerings, or a Qualified Financing, after giving effect to (i) the issuance of the shares issued in the Qualified Financing, (ii) the issuance of this option and (iii) any adjustments. If we do not close a Qualified Financing on or before October 1, 2015, this option will terminate in its entirety and be of no further force or effect. If we do close a Qualified Financing on or before October 1, 2015, the option will become immediately exercisable in full, with 75% of the shares underlying the option to be subject to a repurchase right by us upon Mr. Step’s ceasing to be a service provider to us for any reason. Such right of repurchase will lapse with respect to 1/36th of the shares subject to the right of repurchase on the first day of each month following the date on which the option first becomes exercisable, subject to Mr. Step’s continuing to be a service provider to us through such date. Notwithstanding the foregoing, the right of repurchase will expire in full with respect to all of the shares then subject to the right of repurchase upon the first to occur of a (i) Termination without Cause or by Mr. Step with Good Reason and (ii) a Change in Control Termination (each as defined in Mr. Step’s Executive Severance and Change in Control Agreement).
(5)
This option was granted to Andrew Ritter on September 25, 2013 for an aggregate of up to 350,000 shares (subject to the achievement of certain milestones), of which 16,875 shares were exercisable as of the date of grant due to the company’s having met the FDA Meeting Bonus milestone. An additional 7,222 shares underlying this option vested ratably on a monthly basis from September 30, 2013 to December 31, 2014, and an additional 903 shares vest ratably on a monthly basis thereafter. An additional 325,000 shares underlying this option which are not exercisable as of December 31, 2014 will become exercisable as follows:
(a)
35% of 50,000 of these shares will become exercisable upon the achievement of the Base Financing Funding Milestone (as defined in the option award agreement), with the balance to vest in 36 equal monthly installments beginning on the last day of the month following the month in which the Base Financing Funding Milestone was achieved.
(b)
35% of 100,000 of these shares will become exercisable upon the achievement of the Excess Fundraising Milestone (as defined in the option award agreement), with the balance to vest in 36 equal monthly installments beginning on the last day of the month following the month in which the Excess Fundraising Milestone was achieved.
(c)
35% of 325,000 of these shares will become exercisable upon the receipt by the Company of an Initial Period Licensing Payment (as defined in the 2008 Plan), with the balance to vest in 36 equal monthly installments beginning on the last day of the month following the month in which such Initial Period License Payment is received by the Company.
(d)
35% of 50,000 of these shares will become exercisable upon the receipt by the Company of any Annual Excess Milestone Payments (as defined in the 2008 Plan), with the balance to vest in 36 equal monthly installments beginning on the last day of the following month.
(6)
This option was granted to Andrew Ritter on December 2, 2014 and was vested in full and exercisable, in whole or in part, as of the date of grant.
(7)
This option was granted to Andrew Ritter on December 2, 2014 and vests as follows: 25% of the shares vest on September 1, 2015 and the remaining 75% of the shares will vest in 36 equal monthly installments beginning on the last day of the first full month thereafter, subject to his continued employment with us. The exercise price for this option is as follows: (i) $0.82 for the first 1,089,284 shares; (ii) $1.30 for the next 1,001,311 shares; and (iii) $1.85 for the remaining 1,001,310 shares.
(8)
This option was granted to Ira Ritter on September 25, 2013 and is subject to the same vesting schedule as the option granted to Andrew Ritter on this date.
(9)
This option was granted to Ira Ritter on December 2, 2014 and was vested in full and exercisable, in whole or in part, as of the date of grant.
(10)
This option was granted to Ira Ritter on December 2, 2014 and vest as follows: 25% of the shares vest on September 1, 2015 and the remaining 75% of the shares will vest in 36 equal monthly installments beginning on the last day of the first full month thereafter, subject to his continued employment with us. The exercise price for this option is as follows: (i) $0.82 for the first 1,089,284 shares; (ii) $1.30 for the next 1,001,311 shares; and (iii) $1.85 for the remaining 1,001,310 shares.
Payments Due Upon Termination of Employment or a Change in Control
Executive Severance & Change in Control Agreement with Michael D. Step
The Company and Mr. Step are parties to the Step Severance Agreement, which provides that if the Company terminates Mr. Step’s employment without Cause, or Mr. Step terminates his employment for Good Reason, Mr. Step will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to twelve (12) months of base salary, as in effect immediately prior to the termination date; (iii) medical, dental benefits provided by the Company to Mr. Step and his spouse and dependents at least equal to the levels of benefits provided to other similarly situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the date of termination or (b) the date that Mr. Step becomes covered under a subsequent employer’s medical and dental plans; and (iv) acceleration of vesting of all equity and equity-based awards.
Pursuant to the terms of the Step Severance Agreement, in the event that within one (1) month prior to or the twelve (12) months following a Change in Control, the Company terminates Mr. Step’s employment without Cause, or Mr. Step terminates employment for Good Reason, then, in lieu of the payments and benefits otherwise due to Mr. Step in the preceding paragraph, Mr. Step will be entitled to: (i) the Accrued Obligations; (ii) an amount equal to the sum of twelve (12) months of base salary, as in effect on the date of termination or the date of the Change in Control, whichever is greater; (iii) medical, dental benefits provided by the Company to Mr. Step and his spouse and dependents at least equal to the level of benefits provided to other similarly situated active employees of the Company and its subsidiaries until the earlier of (a) the twelve (12) month anniversary of the date of termination or (b) the date that Mr. Step becomes covered under a subsequent employer’s medical and dental plans; and (iv) acceleration of vesting of all equity and equity-based awards.
In the event Mr. Step’s employment is terminated by him without Good Reason, by the Company for Cause or due to Mr. Step’s death or disability, Mr. Step and/or his estate or beneficiaries will be solely entitled to the Accrued Obligations.
Mr. Step’s entitlement to the payments (other than the Accrued Obligations) and benefits described above is expressly contingent upon him providing the Company with a signed release satisfactory to the Company.
For purposes of the Step Severance Agreement:
“
Accrued Obligations
” means (i) earned but unpaid base salary through the date of termination; (ii) payment of any annual, long-term, or other incentive award which relates to a completed fiscal year or performance period, as applicable, and is payable (but not yet paid) on or before the date of termination; (iii) a lump-sum payment in respect of accrued but unused vacation days at Mr. Step’s per-business-day base salary rate in effect as of the date of termination; and (iv) any unpaid expense or reimbursements due pursuant to Company expense reimbursement policy.
“
Cause
” means a finding by the Company that Mr. Step has (i) been convicted of a felony or crime involving moral turpitude; (ii) disclosed trade secrets or confidential information of the Company (or any parent or subsidiary) to persons not entitled to receive such information; (iii) engaged in conduct in connection with Mr. Step’s employment or service to the Company (or any parent or subsidiary), that has, or could reasonably be expected to result in, material injury to the business or reputation of the Company
(or any parent or subsidiary), including, without limitation, act(s) of fraud, embezzlement, misappropriation and breach of fiduciary duty; (iv) violated the operating and ethics policies of the Company (or any parent or subsidiary) in any material way, including, but not limited to those relating to sexual harassment and the disclosure or misuse of confidential information; (v) engaged in willful and continued negligence in the performance of the duties assigned to Mr. Step by the Company, after Mr. Step has received notice of and failed to cure such negligence; or (vi) breached any material provision of any agreement between Mr. Step and the Company (or any parent or subsidiary), including, without limitation, any confidentiality agreement.
“
Change in Control
” means the occurrence of any of the following events:
(i)
Any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act) becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the voting power of the then outstanding securities of the Company; provided that a Change of Control will not be deemed to occur as a result of a change of ownership resulting from the death of a shareholder, and a Change of Control will not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of another corporation and in which the shareholders of the Company, immediately prior to the transaction, will beneficially own, immediately after the transaction, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the parent corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote);
(ii)
A change in the effective control of the Company which occurs on the date that a majority of members of the board of directors is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the board of directors prior to the date of the appointment or election; or
(iii)
The consummation of (A) a merger or consolidation of the Company with another corporation where the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock to elect directors by a separate class vote); (B) a sale or other disposition of all or substantially all of the assets of the Company; or (C) a liquidation or dissolution of the Company.
“
Good Reason
” means, without Mr. Step’s express written consent, the occurrence of any one or more of the following: (i) a substantial and material diminution in Mr. Step’s duties or responsibilities; (ii) a material reduction in Mr. Step’s Base Salary; or (iii) the relocation of Mr. Step’s principal place of employment to a location more than 50 miles from Mr. Step’s principal work location to a location that is more than 50 miles from the prior location. Notwithstanding the foregoing, a relocation of Mr. Step’s principal place of employment to a location closer to Mr. Step’s principal residence in San Diego, California shall not constitute “Good Reason.” A termination of employment by Mr. Step for Good Reason will be effectuated by giving the Company written notice, or Notice of Termination for Good Reason, not later than 90 days following the occurrence of the circumstance that constitutes Good Reason, setting forth in reasonable detail the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which Mr. Step relied. The Company will be entitled, during the 30-day period following receipt of a Notice of Termination for Good Reason, to cure the circumstances that gave rise to Good Reason, provided that the Company shall be entitled to waive its right to cure or reduce the cure period by delivery of written notice to that effect to Executive (such 30-day or shorter period, the “Cure Period”). If, during the Cure Period, such circumstance is remedied, Mr. Step will not be permitted to terminate employment for Good Reason as a result of such circumstance. If, at the end of the Cure Period, the circumstance that constitutes Good Reason has not been remedied, Mr. Step will terminate employment for Good Reason on the date of expiration of the Cure Period.
Executive Compensation Plan
Under the Executive Compensation Plan, if the Company terminates Andrew or Ira Ritter’s employment at any time during the term of the Executive Compensation Plan other than for Cause, such
person will be entitled to a lump sum cash severance payment in the amount of nine months of base salary then in effect, payable within 60 days of such person’s termination; provided, however, that such severance will not be due and payable at any time the Company has less than $2,000,000 in available cash.
For purposes of the Executive Compensation Plan, “
Cause
” means such person’s: (i) willful and continued failure to substantially perform the duties and obligations of such person’s position with the Company; (ii) any proven act of personal dishonesty, fraud or misrepresentation taken by such person which was intended to result in substantial gain or personal enrichment of such person at the expense of the Company; (iii) violation of a federal or state law or regulation applicable to the Company’s business which violation was or is reasonably likely to be injurious to the Company, excluding violations made in good faith and upon advice of the Company’s counsel or directive of the board of directors; (iv) conviction of, or plea of nolo contendere or guilty to, a felony under the laws of the United States or any State, excluding felonies for minor traffic violations and vicarious liability (in any such case of vicarious liability, so long as such person did not know of the felony and did not willfully violate the law); or (v) breach of the terms of any agreement in place between such person and the Company from time to time, which breach, if curable, is not remedied in a reasonable period of time (not to exceed 30 days after receipt of written notice from the Company).
2008 Stock Plan
The 2008 Stock Plan provides that in the event of a merger or a Change in Control (as defined below) occurs, each outstanding award will be treated as the administrator determines, including, without limitation, that each award be assumed or an equivalent award be substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event of a Change in Control in which the successor corporation does not assume or substitute for the award, awards outstanding under the 2008 Plan will become fully vested and exercisable, including shares as to which such award would not otherwise be vested or exercisable, and all restrictions on outstanding restricted stock awards will lapse.
For purposes of the 2008 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
(i)
A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company, except that any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the board of directors will not be considered a Change in Control;
(ii)
If the Company has a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the board of directors prior to the date of the appointment or election.
(iii)
A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any person acquires (or has acquired during the twelve month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions.
2009 Stock Plan
The 2009 Stock Plan provides that in the event we merge with or into another corporation, or a Change in Control (as defined below) occurs, each outstanding option and stock purchase right will be assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation in a merger or Change in Control refuses to assume or substitute for the option or stock purchase right, then the optionee will fully vest in and have the right to exercise the option or stock purchase right as to all of the optioned stock, including shares as to
which it would not otherwise be vested or exercisable; provided, however, that such exercise will only be permitted as and to the extent it complies with Code Section 409A or does not cause the option or stock purchase right to cease to be exempt from that statute.
For purposes of the 2009 Stock Plan, “
Change in Control
” means the occurrence of any of the following events:
(i)
Any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities representing fifty percent (50%) or more of the total voting power represented by our then outstanding voting securities; or
(ii)
The consummation of the sale or disposition by us of all or substantially all of our assets; or
(iii)
The consummation of a merger or our consolidation with any other corporation, other than a merger or consolidation which would result in our voting securities outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least 50% of the total voting power represented by the our voting securities or such surviving entity or its parent outstanding immediately after such merger or consolidation. Notwithstanding the foregoing, only a Change in Control event that also qualifies as a “change in the ownership” or a “change in the effective control” of the Company or a “change in the ownership of a substantial portion” of our assets within the meaning of Treasury Regulation Section 1.409A-3(i)(5) shall be recognized as a Change of Control for purposes of triggering exercise, distribution or settlement rights under any option or stock purchase right granted under the Stock Plan that is subject to Code Section 409A.
Director Compensation
We have not historically paid compensation to our directors for their service on our board of directors. We are in the process of evaluating possible non-employee director compensation arrangements that would be appropriate for us as a public company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock as of [•], 2014, on a pre-offering basis and as adjusted to reflect the sale of our common stock offered by this prospectus, by:
•
our named executive officers;
•
each of our directors;
•
all of our current directors and executive officers as a group; and
•
each stockholder known by us to own beneficially more than five percent of our common stock.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of [•], 2015, pursuant to the exercise of options are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. The percentage of beneficial ownership of our common stock before this offering is based on an aggregate of 27,084,662 shares outstanding, consisting of (i) 3,327,500 shares of common stock outstanding as of the date of this prospectus and (ii) 23,757,162 shares of common stock into which all of our preferred stock outstanding as of the date of this prospectus will be converted immediately prior to this offering. The percentage of beneficial ownership of our common stock after the offering is based on [•] shares of common stock outstanding after the offering, which includes the common stock to be sold by us in the offering, assuming no exercise of the over-allotment option by the underwriter.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Ritter Pharmaceuticals, Inc., 1801 Century Park East #1820, Los Angeles, California 90067.
|
Beneficial Owner
|
|
|
Number of Shares
Beneficially Owned
|
|
|
Percentage of Common Stock
Beneficially Owned
|
|
|
|
Before Offering
|
|
|
After Offering
|
|
|
Five Percent Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javelin Venture Partners ISPVI, LLC
(1)(2)(3)
|
|
|
|
|
4,615,382
|
|
|
|
|
|
17.0
%
|
|
|
|
|
|
[•
%]
|
|
|
|
Javelin Venture Partners, L.P.
(1)(2)(3)
|
|
|
|
|
9,516,857
|
|
|
|
|
|
35.1
%
|
|
|
|
|
|
[•
%]
|
|
|
|
Stonehenge Partners LLC
(5)(6)(7)
|
|
|
|
|
5,843,499
|
|
|
|
|
|
21.6
%
|
|
|
|
|
|
[•
%]
|
|
|
|
Executive Officers, Directors and Director Nominees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael D. Step
(8)
|
|
|
|
|
[•]
|
|
|
|
|
|
[•
%]
|
|
|
|
|
|
[•
%]
|
|
|
|
Andrew J. Ritter
(6)(9)
|
|
|
|
|
[•]
|
|
|
|
|
|
[•
%]
|
|
|
|
|
|
[•
%]
|
|
|
|
Ira E. Ritter
(7)(10)
|
|
|
|
|
[•]
|
|
|
|
|
|
[•
%]
|
|
|
|
|
|
[•
%]
|
|
|
|
Noah Doyle
(3)(11)
|
|
|
|
|
162,500
|
|
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
Matthew W. Foehr
(12)
|
|
|
|
|
—
|
|
|
|
|
|
*
|
|
|
|
|
|
*
|
|
|
|
All current executive officers and directors as a group (5 persons)
|
|
|
|
|
[•]
|
|
|
|
|
|
[•
%]
|
|
|
|
|
|
[•
%]
|
|
|
*
Represents beneficial ownership of less than 1% of the shares of common stock.
(1)
The address of Javelin I and Javelin is One Rincon Center, 101 Spear Street, Suite 255, San Francisco, California 94105.
(2)
The shares beneficially owned by Javelin I prior to the offering include 2,307,691 shares of Series C preferred stock, all of which will convert automatically into shares of common stock immediately prior to this offering. This number also includes warrants to purchase an aggregate of 2,307,691 shares of our common stock, which are currently exercisable.
(3)
As the managing director of Javelin I and Javelin, Noah Doyle may be deemed the beneficial owner of these shares. Mr. Doyle expressly disclaims beneficial ownership over these shares except to the extent of his pecuniary interest therein.
(4)
The shares beneficially owned by Javelin prior to the offering include 4,196,255 shares of Series A-3 preferred stock, 4,130,498 shares of Series B preferred stock and 595,052 shares of Series C preferred stock, all of which will convert automatically into shares of our common stock immediately prior to this offering. This number also includes warrants to purchase an aggregate of 595,052 shares of our common stock, which are currently exercisable.
(5)
The address of Stonehenge Partners LLC is 21800 Oxnard Street, Suite 250, Woodland Hills, California 91367. The shares beneficially owned by Stonehenge Capital Partners prior to the offering include 5,760,000 shares of Series A-1 preferred stock, 62,500 shares of Series A-2 preferred stock and 20,999 shares of Series B preferred stock, all of which will convert automatically into shares of our common stock immediately prior to this offering.
(6)
As a managing partner of Stonehenge Partners LLC, Andrew Ritter may be deemed the beneficial owner of these shares. Andrew Ritter expressly disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
(7)
As a managing partner of Stonehenge Partners LLC, Ira Ritter may be deemed the beneficial owner of these shares. Ira Ritter expressly disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein.
(8)
Represents shares underlying stock option awards that are currently exercisable or exercisable within 60 days of [•], 2015.
(9)
Represents shares underlying stock option awards that are currently exercisable or exercisable within 60 days of [•], 2015
(10)
Represents shares underlying stock option awards that are currently exercisable or exercisable within 60 days of [•], 2015.
(11)
The shares beneficially owned by Noah Doyle prior to the offering include 62,500 shares of Series A-2 preferred stock, which shares will automatically convert into shares of our common stock immediately prior to this offering.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
In addition to the director and executive officer compensation arrangements discussed above in “Executive and Director Compensation,” since January 1, 2012, we have been a party to the following transactions in which the amount involved exceeded $120,000 and in which any director, executive officer or holder of more than 5% of our voting securities, whom we refer to as our principal stockholders, or affiliates or immediate family members of our directors, executive officers and principal stockholders had or will have a material interest. We believe that all of these transactions were on terms as favorable as could have been obtained from unrelated third parties.
Transactions with Andela Group Inc.
Prior to and during his employment with the Company, Ira Ritter served as the chief executive officer of Andela Group Inc, or Andela, a company he founded in 1987, which is involved in corporate management, strategic and financial consulting. From January 1, 2012 until the date of this prospectus, the Company incurred approximately $635,000 of expenses for services received from Andela.
Promissory Notes issued to Javelin Venture Partners, L.P.
In February and May of 2012, we issued two subordinated convertible promissory notes, or the 2012 Notes, in the aggregate principal amount of $776,446 to Javelin, who, at that time, held greater than 5% and continues to hold greater than 5% of our outstanding voting securities. The notes each bore interest at a rate of 6% per annum. These notes were converted into an aggregate of 664,964 shares of our Series B preferred stock in July 2012 (as described below).
In May, September and October of 2014, we issued three subordinated convertible promissory notes, or the 2014 Notes, in the aggregate principal amount of $510,000 to Javelin. The 2014 Notes each bore interest at a rate of 8% per annum. On October 9, 2014, we issued an unsecured promissory note in the principal amount of $70,000 to Javelin, which bore interest at a rate of 5% per annum. These notes were converted into an aggregate of 595,052 in the Initial Series C Closing (as described below).
Since January 1, 2012, the largest principal amount outstanding to Javelin with respect to the 2012 Notes, the 2014 Notes and the October 2, 2014 unsecured note described above was $776,446.
Noah Doyle, one of our directors, is the managing director of Javelin.
Series B Preferred Stock issued to Javelin Venture Partners, L.P.
In July 2012 and November 2013, we issued 2,848,956 shares of Series B preferred stock to Javelin for an aggregate purchase price of approximately $3.39 million (which consisted of cash and the cancellation of the 2012 Notes).
Series C Preferred Stock Closings
On December 4, 2014, we issued an aggregate of 595,052 shares of Series C preferred stock and warrants to purchase 595,052 shares of our common stock to Javelin and 473,764 shares of Series C preferred stock and warrants to purchase 473,764 shares of our common stock to Javelin I in the Initial Series C Closing for an aggregate purchase price of approximately $1.21 million (consisting of cash and the cancellation of the 2014 Notes and the October 2, 2014 unsecured promissory note described above).
On December 8, 2014, we issued 1,833,927 shares of Series C preferred stock and warrants to purchase 1,833,927 shares of our common stock at an exercise price of $1.30 per share, to Javelin I in the Second Series C Closing for an aggregate cash purchase price of approximately $2.39 million.
Policy for Approval of Related Person Transactions
Pursuant to the written charter of our audit committee that will be in effect upon completion of this offering, the audit committee will be responsible for reviewing and approving, prior to our entry into any such transaction, all transactions in which we are a participant and in which any parties related to us,
including our executive officers, our directors, beneficial owners of more than 5% of our securities, immediate family members of the foregoing persons and any other persons whom our board of directors determines may be considered related parties under Item 404 of Regulation S-K, has or will have a direct or indirect material interest.
In reviewing and approving such transactions, the audit committee will obtain, or will direct our management to obtain on its behalf, all information that the committee believes to be relevant and important to a review of the transaction prior to its approval. Following receipt of the necessary information, a discussion will be held of the relevant factors if deemed to be necessary by the committee prior to approval. If a discussion is not deemed to be necessary, approval may be given by written consent of the committee. This approval authority may also be delegated to the chair of the audit committee in some circumstances. No related party transaction will be entered into prior to the completion of these procedures.
The audit committee or its chair, as the case may be, will approve only those related party transactions that are determined to be in, or not inconsistent with, the best interests of us and our stockholders, taking into account all available facts and circumstances as the committee or the chair determines in good faith to be necessary in accordance with principles of Delaware law generally applicable to directors of a Delaware corporation. These facts and circumstances will typically include, but not be limited to, the benefits of the transaction to us; the impact on a director’s independence in the event the related party is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms of comparable transactions that would be available to unrelated third parties or to employees generally. No member of the audit committee shall participate in any review, consideration or approval of any related party transaction with respect to which the member or any of his or her immediate family members has an interest.
Indemnification Agreements
We have entered or plan to enter into indemnification agreements with each of our directors and officers, the form of which is attached as an exhibit to the registration statement of which this prospectus is a part. The indemnification agreements and our restated certificate of incorporation and restated bylaws (each of which will be effective upon completion of this offering) require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. See “Management — Limitation of Directors’ and Officers’ Liability and Indemnification.”
DESCRIPTION OF CAPITAL STOCK
Our restated certificate of incorporation currently authorizes us to issue up to 50,000,000 shares of common stock, par value $0.001 per share, and 25,266,146 shares of preferred stock, par value $0.001 per share, including 7,200,000 shares of Series A-1 preferred stock, 1,687,500 shares of Series A-2 preferred stock, 4,220,464 shares of Series A-3 preferred stock, 7,658,182 shares of Series B preferred stock and 4,500,000 shares of Series C preferred stock.
As of December 31, 2014, there were 3,327,500 shares of our common stock outstanding, held of record by 20 stockholders. The number of shares of common stock outstanding as of December 31, 2014 does not include (i) 23,757,162 shares of common stock issuable upon the conversion of our outstanding shares of convertible preferred stock (including 1,469,994 shares of our Series B preferred stock to be issued to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering), (ii) 2,991,016 shares of common stock issuable upon the exercise of our outstanding warrants to purchase common stock and (iii) 12,789,327 shares of common stock issuable upon the exercise of outstanding options to purchase common stock.
As of December 31, 2014, there were 7,200,000 shares of Series A-1 preferred stock outstanding, 1,687,500 shares of Series A-2 preferred stock outstanding, 4,220,464 shares of Series A-3 preferred stock outstanding, 6,188,188 shares of Series B preferred stock outstanding, and 2,991,016 shares of Series C preferred stock outstanding.
In accordance with the terms of our restated certificate of incorporation, upon the closing of a firm commitment underwritten public offering pursuant to an effective registration statement filed under the Securities Act, covering the offer and sale of our common stock for aggregate gross proceeds to us in excess of $10,000,000, our preferred stock will automatically convert into an aggregate of 23,757,162 pre-stock split shares of our common stock (including the 1,469,994 shares of our Series B preferred stock to be issued to KPM immediately prior to this offering, upon the automatic exercise of the KPM Option in connection with this offering).
Prior to the closing of this offering, we intend to amend and restate our restated certificate of incorporation, to, among other things, effect a 1-for- reverse stock split and to eliminate the current provisions related to our preferred stock.
The following is a summary of our capital stock and provisions of our restated certificate of incorporation and amended and restated bylaws, as they will be in effect upon the closing of this offering. For more detailed information, please see the form of amended and restated certificate of incorporation and the form of amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus forms a part. The descriptions of our common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.
Upon completion of this offering, we will be authorized to issue shares of common stock, $0.001 par value per share, and shares of preferred stock, $0.001 par value per share, and there will be shares of common stock and no shares of preferred stock outstanding.
Common Stock
Assuming the conversion of all outstanding shares of our preferred stock immediately prior to this offering, and assuming an initial public offering price of $ per share, there will be no more than shares of our common stock outstanding immediately following the consummation of this offering, but assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options or warrants.
Unless otherwise indicated, all references to share numbers in this prospectus filed as part of this registration statement reflect the effects of these reverse stock splits.
All outstanding shares of our common stock are fully paid and nonassessable, and the shares of common stock to be issued upon the conversion of our preferred stock and in connection with this offering will be fully paid and nonassessable.
Pursuant to the terms of the amended and restated certificate of incorporation we intend to adopt in connection with this offering, the holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders, except on matters relating solely to terms of preferred stock. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock will be entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The holders of our common stock will have no preemptive or conversion rights or other subscription rights. There will be no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
Pursuant to the terms of the amended and restated certificate of incorporation we intend to adopt in connection with this offering, our board of directors will have the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, including dividend rights, conversion right, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal.
Registration Rights
On September 15, 2008, we entered into an Investors’ Rights Agreement with certain holders of our preferred stock. Such Investors’ Rights Agreement was amended and restated on November 17, 2010. The Amended and Restated Investors’ Rights Agreement was amended on each of January 13, 2011, February 6, 2012 and December 4, 2014. The Amended and Restated Investors’ Rights Agreement, as amended, provides such holders with certain demand and piggyback registration rights with respect to shares of our common stock into which the shares of our preferred stock are convertible. These registration rights will be extinguished, and the Amended and Restated Investors’ Rights Agreement terminated, when all of our outstanding shares of preferred stock are converted into shares of common stock in connection with this offering.
Anti-Takeover Effects of Delaware Law and Our Restated Certificate of Incorporation and Restated Bylaws
The provisions of Delaware law and our restated certificate of incorporation and restated bylaws to be effective upon completion of this offering could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of our control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. Such provisions also may have the effect of preventing changes in our management.
Delaware Statutory Business Combinations Provision
. We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Section 203 prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was,
approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a “business combination” is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an “interested stockholder” is a person who, together with his or her affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s voting stock.
Election and Removal of Directors
. Our stockholders may only remove directors for cause. Our board of directors may elect a director to fill a vacancy, including vacancies created by the expansion of the board of directors. This system of electing and removing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of our directors. Our certificate of incorporation and bylaws will not provide for cumulative voting in the election of directors.
Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors
. Our restated bylaws provide that, for nominations to the board of directors or for other business to be properly brought by a stockholder before a meeting of stockholders, the stockholder must first have given timely notice of the proposal in writing to our Secretary. For an annual meeting, a stockholder’s notice generally must be delivered not less than 90 days or more than 120 days prior to the anniversary of the mailing date of the proxy statement for the previous year’s annual meeting. For a special meeting, the notice must generally be delivered not earlier than the 90
th
day prior to the meeting and not later than the later of (1) the 60
th
day prior to the meeting or (2) the 10
th
day following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information required in the notice are specified in the restated bylaws. If it is determined that business was not properly brought before a meeting in accordance with our bylaw provisions, such business will not be conducted at the meeting.
Special Meetings of Stockholders
. Special meetings of the stockholders may be called at any time only by the board of directors, the Chairman of the board of directors or our Chief Executive Officer or, in the absence of a Chief Executive Officer, our President, subject to the rights of the holders of any series of preferred stock.
No Stockholder Action by Written Consent
. Any action to be effected by our stockholders must be effected at a duly called annual or special meeting of the stockholders.
Super Majority Stockholder Vote Required for Certain Actions
. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation’s certificate of incorporation or by-laws, unless the corporation’s certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our restated certificate of incorporation requires the affirmative vote of the holders of at least 80% of our outstanding voting stock to amend or repeal any of the provisions discussed in this section of this prospectus entitled “Anti-Takeover Effects of Delaware Law and Our Restated Certificate of Incorporation and Restated Bylaws,” or to reduce the number of authorized shares of common stock or preferred stock. This 80% stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. An 80% vote is also required for any amendment to, or repeal of, our restated bylaws by the stockholders. Our restated bylaws may be amended or repealed by a simple majority vote of the board of directors.
Blank-Check Preferred Stock
. Our board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that our board of directors does not approve.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Corporate Stock Transfer, Inc.
Stock Market Listing
We have applied to list our common stock on The NASDAQ Capital Market under the symbol “RTTR.”
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock, and a liquid public trading market for our common stock may not develop or be sustained after this offering. If a public market does develop, future sales of significant amounts of our common stock, including shares issued upon exercise of outstanding options, or the anticipation of those sales, could adversely affect the public market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities. We intend to apply to list our common stock on The NASDAQ Capital Market under the symbol “RTTR.”
Upon the closing of the offering made hereby, we will have outstanding an aggregate of shares of common stock, assuming no exercise by the underwriters of their over-allotment option or of the representative’s warrants and no exercise of outstanding options. Of these shares, all of the shares of our common stock sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares of our common stock purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act, whose sales would be subject to the Rule 144 resale restrictions described below.
The remaining shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under the Securities Act. One such safe-harbor exemption is Rule 144, which is summarized below.
Subject to the lock-up agreements described below and the provisions of Rule 144 under the Securities Act, these restricted securities will be available for sale in the public market as follows:
|
Date Available for Sale
|
|
|
Shares Eligible
for Sale
|
|
|
Comment
|
|
|
Date of prospectus
|
|
|
|
|
|
Shares sold in the offering and shares that may be sold under Rule 144 that are not subject to a lock-up
|
|
|
90 days after date of prospectus
|
|
|
|
|
|
Shares that are not subject to a lock-up and can be sold under Rule 144
|
|
|
180 days* after date of prospectus
|
|
|
|
|
|
Lock-up released; shares that can be sold under Rule 144
|
|
*
Assumes that no options will be exercised on a “cashless” basis.
**
180 days corresponds to the lock-up period described below in “— Lock-Up Agreements.” This lock-up period may be extended or shortened under certain circumstances as described in “Underwriting.” However, Aegis Capital Corp. may in its sole discretion, release all or any portion of the shares from the restrictions in any of these agreements.
Rule 144
Affiliate Resales of Shares
Affiliates of ours must generally comply with Rule 144 if they wish to sell any shares of our common stock in the public market, whether or not those shares are “restricted securities.” “Restricted securities” are any securities acquired from us or one of our affiliates in a transaction not involving a public offering. All shares of our common stock issued prior to the closing of the offering made hereby, and the shares of common stock that our preferred stock can be converted into are considered to be restricted securities. The shares of our common stock sold in this offering are not considered to be restricted securities.
In general, subject to the lock-up agreements described below, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is an affiliate of ours, or who was an affiliate of ours at any time during the three months immediately before a sale can sell restricted shares of our common stock in compliance with the following requirements of Rule 144.
Holding period
: If the shares are restricted securities, an affiliate must have beneficially owned the shares of our common stock for at least six months.
Manner of sale
: An affiliate must sell its shares in “broker’s transactions” or certain “riskless principal transactions” or to market makers, each within the meaning of Rule 144.
Limitation on number of shares sold
: An affiliate is only allowed to sell within any three-month period an aggregate number of shares of our common stock that does not exceed the greater of:
•
one percent of the number of the total number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; and
•
the average weekly trading volume in our common stock on the stock exchange where our common stock is traded during the four calendar weeks preceding either (i) to the extent that the seller is required to file a notice on Form 144 with respect to such sale, the date of filing such notice, (ii) the date of receipt of the order to execute the transaction by the broker or (iii) the date of execution of the transaction with the market maker.
Current public information
: An affiliate may only resell its restricted securities to the extent that adequate current public information, as defined in Rule 144, is available about us, which, in our case, means that we have been subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act for a period of at least 90 days prior to the date of the sale and we have filed all reports with the Securities and Exchange Commission required by those sections during the preceding 12 months (or such shorter period that we have been subject to these filing requirements).
Notice on Form 144
: If the number of shares of our common stock being sold by an affiliate under Rule 144 during any three-month period exceeds 5,000 shares or has an aggregate sale price in excess of $50,000, then the seller must file a notice on Form 144 with the Securities and Exchange Commission and the stock exchange on which our common stock is traded concurrently with either the placing of a sale order with the broker or the execution directly with a market maker.
Non-Affiliate Resales of Restricted Shares
Any person or entity who is not an affiliate of ours and who has not been an affiliate of ours at any time during the three months preceding a sale is only required to comply with Rule 144 in connection with sales of restricted shares of our common stock. Subject to the lock-up agreements described below, those persons may sell shares of our common stock that they have beneficially owned for at least one year without any restrictions under Rule 144 immediately following the effective date of the registration statement of which this prospectus is a part.
Further, beginning 90 days after the effective date of the registration statement of which this prospectus is a part, a person who is not an affiliate of ours at the time such person sells shares of our common stock, and has not been an affiliate of ours at any time during the three months preceding such sale, and who has beneficially owned such shares of our common stock, as applicable, for at least six months but less than a year, is entitled to sell such shares so long as there is adequate current public information, as defined in Rule 144, available about us.
Resales of restricted shares of our common stock by non-affiliates are not subject to the manner of sale, volume limitation or notice filing provisions of Rule 144, described above.
Rule 701
In general, under Rule 701 of the Securities Act, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act, along with the shares acquired upon exercise of such options, including exercises after the
date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its one-year minimum holding period requirement.
Stock Options
As of December 31, 2014, options to purchase a total of 12,789,327 shares of common stock were outstanding and exercisable. [•] of the shares subject to options are subject to lock-up agreements.
Upon completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all shares of common stock subject to outstanding options under our existing stock plans or issuable pursuant to our 2015 Plan. Subject to Rule 144 volume limitations applicable to affiliates, shares registered under any registration statements will be available for sale in the open market, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described below.
Lock-Up Agreements
Our officers, directors and all of holders of our outstanding shares, who hold an aggregate of approximately [•] shares of our common stock and/or shares underlying outstanding options to purchase common stock, have agreed, subject to limited exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock held prior to the offering for a period of 180 days after the date of this prospectus, without the prior written consent of Aegis Capital Corp., the representative of the underwriters. Aegis Capital Corp., as the representative of the underwriters, may in its sole discretion choose to release any or all of these shares from these restrictions prior to the expiration of the 180-day period.
UNDERWRITING
Aegis Capital Corp. is acting as the sole book-running manager of the offering and as representative of the underwriters, or the Representative. We have entered into an underwriting agreement, dated , 2015, with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally and not jointly agreed to purchase from us, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
|
Underwriter
|
|
|
Number of
Shares
|
|
|
Aegis Capital Corp
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Over-allotment Option
. We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $ and the total net proceeds, before expenses, to us will be $ .
Discount
. The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
|
|
|
|
Per
Share
|
|
|
Total Without
Over-Allotment
Option
|
|
|
Total With
Over-Allotment
Option
|
|
|
Public offering price
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Underwriting discount (7%)
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Proceeds, before expense, to us
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Non-accountable expense allowance (1%)
(1)
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
(1)
The expense allowance of 1% is not payable with respect to the shares sold upon exercise of the underwriters’ over-allotment option.
The underwriters propose to offer the shares to the public at the public offering price per share set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $ per share. After the initial public offering, the public offering price and concession to dealers may be changed.
We have paid an expense deposit of $25,000 to the representative for out-of-pocket accountable expenses, which will be applied against the accountable expense allowance (in compliance with FINRA Rule 5110(f)(2)(c)) that will be paid by us to the underwriter in connection with this offering. We have also agreed to pay the underwriter’s expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $5,000 per individual and $15,000 in the aggregate; (b) all filing fees associated with the review of this offering by FINRA; (c) all fees, expenses and disbursements relating to the registration or qualification of securities offered under the “blue sky” securities laws of such states and other jurisdictions designated by the underwriter, including up to a maximum payment of $15,000 in legal fees to underwriter’s counsel in connection with fees, expenses and disbursements related only to “blue sky” filings for an offering commenced on the Over the Counter Bulletin Board; (d) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the underwriter; (e) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones in an amount not to exceed $2,500; (f) the reasonable fees and expenses of the underwriter’s legal counsel not to exceed $50,000, but only if the gross proceeds to the Company from this offering equal or exceed $25 million; (g) the $21,775 cost associated with the use of Ipreo’s book-building, prospectus tracking and compliance software for this offering; and (h) up to $20,000 of the underwriter’s actual accountable road show expenses for this offering upon successful completion of this offering. Notwithstanding the foregoing, the maximum amount of accountable out-of-pocket expenses of the underwriters that we will be required to pay will not exceed $125,000 in the aggregate.
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount, will be approximately $ .
Discretionary Accounts
. The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
. Pursuant to certain “lock-up” agreements, we, our executive officers and directors, and all holders of our outstanding shares of common stock on a fully diluted basis (including shares underlying options, warrants and convertible securities) have agreed, subject to certain exceptions, not to offer, sell, assign, transfer, pledge, contract to sell, or otherwise dispose of or announce the intention to otherwise dispose of, or enter into any swap, hedge or similar agreement or arrangement that transfers, in whole or in part, the economic risk of ownership of, directly or indirectly, engage in any short selling of any common stock or securities convertible into or exchangeable or exercisable for any common stock, whether currently owned or subsequently acquired, without the prior written consent of the Representative, for a period of 180 days from the date of effectiveness of the offering.
Representative’s Warrants
. We have agreed to issue to the Representative warrants to purchase up to a total of shares of common stock (4% of the shares of common stock sold in this offering, but excluding the over-allotment option). The warrants will be exercisable at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the offering, which period shall not extend further than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(i). The warrants are exercisable at a per share price equal to $ per share, or 125% of the public offering price per share in the offering. The warrants have been deemed compensation by FINRA and are therefore subject to a 180 day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the date of effectiveness. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(G)(v). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain
circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Right of First Refusal
. For a period of twelve (12) months from the effective date of this prospectus, the Company will grant to the Representative an irrevocable right of first refusal to act as sole book-runner and/or sole placement agent, at Aegis’ sole discretion, for each and every future public and private equity and debt offering, including all equity linked financings, during such twelve (12) month period of the Company, or any successor to or any subsidiary of the Company, on terms customary to the Representative.
Electronic Offer, Sale and Distribution of Securities
. A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representative may agree to allocate a number of shares and warrants to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Determination of the Initial Public Offering Price
. Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined through negotiations between us and the Representative of the underwriters. In addition to prevailing market conditions, the factors considered in determining the initial public offering price included the following:
•
the information included in this prospectus and otherwise available to the Representative;
•
the valuation multiples of publicly traded companies that the Representative believes to be comparable to us;
•
our financial information;
•
our prospects and the history and the prospectus of the industry in which we compete;
•
an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
•
the present state of our development; and
•
the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for our common stock may not develop. It is also possible that, after the offering, the shares will not trade in the public market at or above the initial public offering price.
Stabilization
. In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
•
Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the offering is in progress.
•
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position that may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that
they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
•
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the offering.
•
Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares or common stock or preventing or retarding a decline in the market price of our shares or common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive market making
. In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.
Other Terms
. Certain of the underwriters and their affiliates have provided, and may in the future provide, various investment banking, commercial banking and other financial services for us and our affiliates for which they have received, and may in the future receive, customary fees. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian
Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of common stock will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.
An offer to the public of common stock has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
•
to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
•
to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statement);
•
to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)I of the Prospectus Directive) subject to obtaining the prior consent of the company or any underwriter for any such offer; or
•
in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of common stock shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.
France
This document is not being distributed in the context of a public offering of financial securities (
offre au public de titres financiers
) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (
Code monétaire et financier
) and Articles 211-1 et seq. of the General Regulation of the French
Autorité des marchés financiers
(“AMF”). The common stock has not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the common stock has not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (
investisseurs qualifiés
) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and
Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (
cercle restreint d’investisseurs non-qualifiés
) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the common stock cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The common stock has not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The common stock offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the ISA), or ISA, nor have such common stock been registered for sale in Israel. The shares and warrants may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the common stock being offered. Any resale in Israel, directly or indirectly, to the public of the common stock offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the common stock in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (
Commissione Nazionale per le Società e la Borsa,
“
CONSOB
” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the common stock may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
•
to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
•
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.
Any offer, sale or delivery of the common stock or distribution of any offer document relating to the common stock in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
•
made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
•
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.
Any subsequent distribution of the common stock in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such common stock being declared null and void and in the liability of the entity transferring the common stock for any damages suffered by the investors.
Japan
The common stock has not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the common stock may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires common stock may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of common stock is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (
oferta pública de valores mobiliários
) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (
Código dos Valores Mobiliários
). The common stock has not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the common stock has not been, and will not be, submitted to the Portuguese Securities Market Commission (
Comissão do Mercado de Valores Mobiliários
) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of common stock in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the common stock be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980)
om handel med finansiella instrument
). Any offering of common stock in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the common stock may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the common stock has been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of common stock will not be supervised by, the Swiss Financial Market Supervisory Authority (FINMA).
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the common stock have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the common stock within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the common stock, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by us.
No offer or invitation to subscribe for common stock is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the common stock. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the common stock may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances that do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the common stock has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
LEGAL MATTERS
The validity of the shares of the common stock offered by this prospectus will be passed upon for us by Reed Smith LLP, New York, New York. The underwriters are being represented by Greenberg Traurig, LLP, New York, New York.
EXPERTS
Mayer Hoffman McCann P.C., our independent registered public accounting firm, has audited our balance sheets as of December 31, 2014 and 2013, and the related statements of operations, changes in securities subject to redemption and shareholders’ deficit and cash flows for each of the two years in the period ended December 31, 2014, as set forth in their report, which report expresses an unqualified opinion and includes an explanatory paragraph relating to our ability to continue as a going concern. We have included our financial statements in this prospectus and in this registration statement in reliance on the report of Mayer Hoffman McCann P.C. given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement without charge at the public reference room of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the Securities and Exchange Commission at prescribed rates from the public reference room of the Securities and Exchange Commission at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the Securities and Exchange Commission electronically are publicly available through the Securities and Exchange Commission’s web site at
http://www.sec.gov
. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the Securities and Exchange Commission.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act and, accordingly, will be required to file annual reports containing financial statements audited by an independent public accounting firm, quarterly reports containing unaudited financial data, current reports, proxy statements and other information with the Securities and Exchange Commission. You will be able to inspect and copy such periodic reports, proxy statements and other information at the Securities and Exchange Commission’s public reference room, and the web site of the Securities and Exchange Commission referred to above.
RITTER PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
Page
|
|
AUDITED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
F-
2
|
|
|
|
|
|
|
F-
3
|
|
|
|
|
|
|
F-
4
|
|
|
|
|
|
|
F-
5
|
|
|
|
|
|
|
F-
6
|
|
|
|
|
|
|
F-
7
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Members of Ritter Pharmaceuticals, Inc.:
RITTER PHARMACEUTICALS, INC.
We have audited the accompanying balance sheets of Ritter Pharmaceuticals, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related statements of operations, statements of changes in securities subject to redemption and stockholders’ deficit, and cash flows for the years then ended, and the related notes to the financial statements. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ritter Pharmaceuticals, Inc. as of December 31, 2014 and 2013, and results of its operations and its cash flows for the periods then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred recurring operating losses and is dependent on additional financing to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2 to the financial statements. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
/s/ Mayer Hoffman McCann P.C.
Orange County, California
March 13, 2015
RITTER PHARMACEUTICALS, INC.
BALANCE SHEETS
|
|
|
|
December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
2,747,248
|
|
|
|
|
$
|
448,226
|
|
|
|
Prepaid expenses
|
|
|
|
|
57,115
|
|
|
|
|
|
76,636
|
|
|
|
Total current assets
|
|
|
|
|
2,804,363
|
|
|
|
|
|
524,862
|
|
|
|
Other assets
|
|
|
|
|
10,331
|
|
|
|
|
|
15,359
|
|
|
|
Deferred offering costs
|
|
|
|
|
143,454
|
|
|
|
|
|
—
|
|
|
|
Property and equipment, net
|
|
|
|
|
5,172
|
|
|
|
|
|
7,485
|
|
|
|
Total Assets
|
|
|
|
$
|
2,963,320
|
|
|
|
|
$
|
547,706
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
1,083,597
|
|
|
|
|
$
|
834,496
|
|
|
|
Accrued expenses
|
|
|
|
|
168,635
|
|
|
|
|
|
27,443
|
|
|
|
Notes payable
|
|
|
|
|
—
|
|
|
|
|
|
31,500
|
|
|
|
Other liabilities
|
|
|
|
|
2,518
|
|
|
|
|
|
4,517
|
|
|
|
Total current liabilities
|
|
|
|
|
1,254,750
|
|
|
|
|
|
897,956
|
|
|
|
Preferred stock subject to redemption, $0.001 par value, 16,378,646 and 11,878,646 shares authorized as of December 31, 2014 and December 31, 2013, respectively, 13,399,668 and 10,408,652 shares issued and outstanding at December 31, 2014 and December 2013, respectively. $9.1 million aggregate liquidation preference of Series B cumulative preferred stock at December 31, 2014
|
|
|
|
|
16,203,612
|
|
|
|
|
|
12,413,876
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001, 8,887,500 shares authorized, issued and outstanding as of December 31, 2014 and December 31, 2013
|
|
|
|
|
8,888
|
|
|
|
|
|
8,888
|
|
|
|
Common stock, par value $0.001, 50,000,000 and 26,500,000 shares
authorized as of December 31, 2014 and December 31, 2013,
respectively; 3,327,500 and 3,227,500 shares issued and outstanding as
of December 31, 2014 and December 31, 2013, respectively
|
|
|
|
|
3,328
|
|
|
|
|
|
3,228
|
|
|
|
Additional paid-in capital
|
|
|
|
|
3,397,061
|
|
|
|
|
|
2,056,570
|
|
|
|
Accumulated deficit
|
|
|
|
|
(17,904,319
)
|
|
|
|
|
|
(14,832,812
)
|
|
|
|
Total stockholders’ deficit
|
|
|
|
|
(14,495,042
)
|
|
|
|
|
|
(12,764,126
)
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
|
|
$
|
2,963,320
|
|
|
|
|
$
|
547,706
|
|
|
|
|
See accompanying notes to financial statements
RITTER PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
|
$
|
113,931
|
|
|
|
|
$
|
461,551
|
|
|
|
Patent costs
|
|
|
|
|
197,731
|
|
|
|
|
|
292,358
|
|
|
|
General and administrative
|
|
|
|
|
1,969,960
|
|
|
|
|
|
1,356,888
|
|
|
|
Total operating expenses
|
|
|
|
|
2,281,622
|
|
|
|
|
|
2,110,797
|
|
|
|
Operating loss
|
|
|
|
|
(2,281,622
)
|
|
|
|
|
|
(2,110,797
)
|
|
|
|
Other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
|
|
(525
)
|
|
|
|
|
|
(1,677
)
|
|
|
|
Interest expense
|
|
|
|
|
213,516
|
|
|
|
|
|
6,076
|
|
|
|
Other income
|
|
|
|
|
(21,148
)
|
|
|
|
|
|
(19,365
)
|
|
|
|
Total other expense (income)
|
|
|
|
|
191,843
|
|
|
|
|
|
(14,966
)
|
|
|
|
Net loss
|
|
|
|
|
(2,473,465
)
|
|
|
|
|
$
|
(2,095,831
)
|
|
|
|
Cumulative preferred stock dividends
|
|
|
|
|
589,462
|
|
|
|
|
|
547,303
|
|
|
|
Accretion of discount on Series C preferred stock
|
|
|
|
|
8,580
|
|
|
|
|
|
—
|
|
|
|
Net loss applicable to common stockholders
|
|
|
|
$
|
(3,071,507
)
|
|
|
|
|
$
|
(2,643,134
)
|
|
|
|
Net loss per common share – basic and diluted
|
|
|
|
$
|
(0.95
)
|
|
|
|
|
$
|
(0.82
)
|
|
|
|
Weighted average common shares outstanding – basic and diluted
|
|
|
|
|
3,235,445
|
|
|
|
|
|
3,227,500
|
|
|
|
|
See accompanying notes to financial statements
RITTER PHARMACEUTICALS, INC.
STATEMENTS OF CHANGES IN SECURITIES SUBJECT TO REDEMPTION AND STOCKHOLDERS’ DEFICIT
|
|
|
|
Preferred
Stock Subject to
Redemption
|
|
|
Stockholders’ Deficit
|
|
|
Total
Stockholders’
Deficit
|
|
|
|
|
|
Preferred Stock
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Accumulated
Deficit
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at December 31, 2012
|
|
|
|
|
9,885,423
|
|
|
|
|
$
|
11,093,677
|
|
|
|
|
|
8,887,500
|
|
|
|
|
$
|
8,888
|
|
|
|
|
|
3,227,500
|
|
|
|
|
$
|
3,228
|
|
|
|
|
$
|
2,029,920
|
|
|
|
|
$
|
(12,189,678
)
|
|
|
|
|
$
|
(10,147,642
)
|
|
|
|
Conversion of note payable into shares
|
|
|
|
|
103,234
|
|
|
|
|
|
122,901
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
12,253
|
|
|
|
|
|
—
|
|
|
|
|
|
12,253
|
|
|
|
Prepaid forward sale of Series B preferred stock
|
|
|
|
|
—
|
|
|
|
|
|
150,000
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Issuance of shares subject to redemption
|
|
|
|
|
419,995
|
|
|
|
|
|
499,995
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Stock based compensation
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
14,397
|
|
|
|
|
|
—
|
|
|
|
|
|
14,397
|
|
|
|
Cumulative dividends on Series B preferred stock
|
|
|
|
|
—
|
|
|
|
|
|
547,303
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(547,303
)
|
|
|
|
|
|
(547,303
)
|
|
|
|
Net loss
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,095,831
)
|
|
|
|
|
|
(2,095,831
)
|
|
|
|
Balance at December 31, 2013
|
|
|
|
|
10,408,652
|
|
|
|
|
$
|
12,413,876
|
|
|
|
|
|
8,887,500
|
|
|
|
|
$
|
8,888
|
|
|
|
|
|
3,227,500
|
|
|
|
|
$
|
3,228
|
|
|
|
|
$
|
2,056,570
|
|
|
|
|
$
|
(14,832,812
)
|
|
|
|
|
$
|
(12,764,126
)
|
|
|
|
Conversion of notes payable into preferred stock subject to redemption and warrants to purchase common stock
|
|
|
|
|
621,788
|
|
|
|
|
|
660,635
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
136,733
|
|
|
|
|
|
—
|
|
|
|
|
|
136,733
|
|
|
|
Issuance of preferred stock subject
to redemption and warrants to
purchase common stock, net of
offering cost of $68,767
|
|
|
|
|
2,369,228
|
|
|
|
|
|
2,531,059
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
482,068
|
|
|
|
|
|
—
|
|
|
|
|
|
482,068
|
|
|
|
Exercise of options on common stock
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
100,000
|
|
|
|
|
|
100
|
|
|
|
|
|
14,300
|
|
|
|
|
|
—
|
|
|
|
|
|
14,400
|
|
|
|
Stock based compensation
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
707,390
|
|
|
|
|
|
—
|
|
|
|
|
|
707,390
|
|
|
|
Cumulative dividends on Series B preferred stock
|
|
|
|
|
—
|
|
|
|
|
|
589,462
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(589,462
)
|
|
|
|
|
|
(589,462
)
|
|
|
|
Accretion of discount on Series C preferred stock
|
|
|
|
|
—
|
|
|
|
|
|
8,580
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(8,580
)
|
|
|
|
|
|
(8,580
)
|
|
|
|
Net loss
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2,473,465
)
|
|
|
|
|
|
(2,473,465
)
|
|
|
|
Balance at December 31, 2014
|
|
|
|
|
13,399,668
|
|
|
|
|
$
|
16,203,612
|
|
|
|
|
|
8,887,500
|
|
|
|
|
$
|
8,888
|
|
|
|
|
|
3,327,500
|
|
|
|
|
$
|
3,328
|
|
|
|
|
$
|
3,397,061
|
|
|
|
|
$
|
(17,904,319
)
|
|
|
|
|
$
|
(14,495,042
)
|
|
|
|
|
See accompanying notes to financial statements
RITTER PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$
|
(2,473,465
)
|
|
|
|
|
$
|
(2,095,831
)
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
Depreciation
|
|
|
|
|
3,479
|
|
|
|
|
|
2,139
|
|
|
|
Stock based compensation
|
|
|
|
|
707,390
|
|
|
|
|
|
14,397
|
|
|
|
Change in fair value of put embedded in convertible debt
|
|
|
|
|
(21,148
)
|
|
|
|
|
|
—
|
|
|
|
Accretion of discount on convertible debt
|
|
|
|
|
10,192
|
|
|
|
|
|
—
|
|
|
|
Non-cash interest on conversion of debt
|
|
|
|
|
184,445
|
|
|
|
|
|
—
|
|
|
|
Increase (decrease) in cash attributable to changes in operating assets
and liabilities:
|
|
|
|
|
Prepaid expenses
|
|
|
|
|
19,521
|
|
|
|
|
|
1,655
|
|
|
|
Other assets
|
|
|
|
|
5,028
|
|
|
|
|
|
(7,903
)
|
|
|
|
Accounts payable
|
|
|
|
|
249,101
|
|
|
|
|
|
119,742
|
|
|
|
Accrued expenses
|
|
|
|
|
160,071
|
|
|
|
|
|
4,370
|
|
|
|
Other liabilities
|
|
|
|
|
(1,999
)
|
|
|
|
|
|
4,517
|
|
|
|
Net cash used in operating activities
|
|
|
|
|
(1,157,385
)
|
|
|
|
|
|
(1,956,914
)
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
|
|
(1,166
)
|
|
|
|
|
|
(8,692
)
|
|
|
|
Net cash used in investing activities
|
|
|
|
|
(1,166
)
|
|
|
|
|
|
(8,692
)
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred offering costs
|
|
|
|
|
(143,454
)
|
|
|
|
|
|
—
|
|
|
|
Proceeds from borrowing under notes payable
|
|
|
|
|
605,000
|
|
|
|
|
|
—
|
|
|
|
Repayment of borrowing under note payable
|
|
|
|
|
(31,500
)
|
|
|
|
|
|
(6,000
)
|
|
|
|
Net proceeds from issuance of preferred stock subject to redemption and warrants to purchase common stock
|
|
|
|
|
3,013,127
|
|
|
|
|
|
499,995
|
|
|
|
Proceeds received on prepaid forward sale of preferred stock subject to redemption
|
|
|
|
|
—
|
|
|
|
|
|
150,000
|
|
|
|
Proceeds from exercise of options on common stock
|
|
|
|
|
14,400
|
|
|
|
|
|
—
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
3,457,573
|
|
|
|
|
|
643,995
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
2,299,022
|
|
|
|
|
|
(1,321,611
)
|
|
|
|
Cash at beginning of period
|
|
|
|
|
448,226
|
|
|
|
|
|
1,769,837
|
|
|
|
Cash at end of period
|
|
|
|
$
|
2,747,248
|
|
|
|
|
$
|
448,226
|
|
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of account payable to note payable
|
|
|
|
$
|
—
|
|
|
|
|
$
|
37,500
|
|
|
|
Conversion of notes payable into preferred stock subject to redemption and warrants to purchase common stock
|
|
|
|
$
|
612,923
|
|
|
|
|
$
|
135,154
|
|
|
|
Cumulative preferred stock dividends
|
|
|
|
$
|
589,462
|
|
|
|
|
$
|
547,303
|
|
|
|
Accretion of Series C
|
|
|
|
$
|
8,580
|
|
|
|
|
Cash paid for interest
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Cash paid for taxes
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
See accompanying notes to financial statements
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND PRINCIPAL ACTIVITIES
Ritter Pharmaceuticals, Inc. (“Ritter” or the “Company”) is a Delaware corporation headquartered in Los Angeles, California. The Company was formed as a Nevada limited liability company on March 29, 2004 under the name Ritter Natural Sciences, LLC, and converted into a Delaware corporation on September 16, 2008.
The Company is a privately held pharmaceutical company that develops novel therapeutic products that modulate the human gut microbiome to treat gastrointestinal diseases. The Company’s leading compound, RP-G28, is currently under development for the treatment of lactose intolerance. RP-G28 has the potential to become the first FDA-approved drug for the reduction of symptoms associated with lactose intolerance, a debilitating disease that affects over 1 billion people worldwide.
NOTE 2 — BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented.
The Company currently operates in one business segment focusing on the development and commercialization of RP-G28. The Company is not organized by market and is managed and operated as one business. A single management team reports to the chief operating decision maker, the Chief Executive Officer, who comprehensively manages the entire business. The Company does not currently operate any separate lines of business or separate business entities.
Going Concern
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company has not yet realized any significant revenues from its planned principal operations. The Company had net losses of approximately $2.5 million and $2.1 million for the years ended December 31, 2014 and 2013, respectively, and had net cash used in operating activities of approximately $1.2 million and $2 million for the years ended December 31, 2014 and 2013, respectively. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern.
Since inception, the operations of the Company have been funded through the sale of common shares, preferred shares and convertible debt. Management cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. If the Company is not able to raise additional capital when required or on acceptable terms, the Company may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that the Company would otherwise seek to develop or commercialize.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 3 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosed in the
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. The more significant estimates and assumptions by management include among others: the valuation allowance of deferred tax assets resulting from net operating losses and the valuation of the Company’s common stock and options on the Company’s common stock.
Concentration of Credit Risk
Cash consists of checking accounts. While cash held by financial institutions may at times exceed federally insured limits, management believes that no material credit or market risk exposure exists due to the high quality of the institutions. The Company has not experienced any losses on such accounts.
Deferred Offering Costs
Deferred offering costs, which primarily consist of direct, incremental banking, legal and accounting fees relating to a planned public offering of the Company’s common stock, are capitalized within long term assets. The deferred offering costs will be reclassified to additional paid-in capital upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed.
Accrued Expenses
The Company incurs periodic expenses such as research and development, salaries, taxes, and professional fees. An adjusting entry to accrue expenses is necessary when expenses have been incurred by the Company prior to them being paid. When a vendor’s invoice is not received, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice monthly in arrears for services performed or when contractual milestones are met. The Company estimates accrued expenses as of each balance sheet date based on facts and circumstances known at that time. The Company periodically confirms the accuracy of its estimates with the service providers and makes adjustments if necessary.
Property and Equipment
Property and equipment is carried at cost and depreciated on a straight-line basis over the estimated useful lives of assets, generally five to seven years. Leasehold improvements are depreciated over the shorter of their estimated useful lives or the term of the respective lease on a straight line basis. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciated are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.
Accounting for Income Taxes
Deferred tax assets and liabilities are recognized for the expected future consequences of events that have been reflected in the financial statements. Deferred tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and operating loss carryforwards, using tax rates expected to be in effect for the years in which the differences are expected to reverse. Such differences arise primarily from stock-based compensation and net operating loss carryforwards. The Company records a valuation allowance to reduce deferred income tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. Prior to September 15, 2008, the Company was a limited liability company and the Company’s tax losses and credits generally flowed directly to the members.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Research and Development
The Company expenses the cost of research and development as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and pre-clinical materials as well as other contracted services, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made, in accordance with ASC 730,
Research and
Development
.
Patent Costs
The Company has no historical data to support a probable future economic benefit for the arising patent applications, filing and prosecution costs. Therefore, patent costs are expensed as incurred. Should the Company experience a legal cost to defend a patent in the future, that cost would be capitalized only when it is part of the cost of retaining and obtaining the future economic benefit of the patent. Costs related to an unsuccessful outcome would be expensed.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
•
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
•
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
•
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Fair Value of Financial Instruments
ASC 820,
Fair Value Measurement and Disclosures
, requires all entities to disclose the fair value of financial instruments, both assets and liabilities for which it is practicable to estimate fair value, and defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. As of December 31, 2014 and 2013, the recorded values of cash and cash equivalents, prepaid expenses, accounts payable, accrued expenses, and notes payable approximate the fair values due to the short-term nature of the instruments.
Employee Stock-based Compensation
Stock-based compensation issued to employees and members of the Company’s Board of Directors is measured at the date of grant based on the estimated fair value of the award, net of estimated forfeitures. The grant date fair value of a stock-based award is recognized as an expense over the requisite service period of the award on a straight-line basis.
For purposes of determining the variables used in the calculation of stock-based compensation issued to employees
,
the Company performs an analysis of current market data and historical data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
exception of the expected forfeiture rate, which is not an input, the Company uses these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in the Company’s statements of operations. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on the Company’s financial statements.
Stock-based Compensation Issued to Non-employees
Common stock issued to non-employees for acquiring goods or providing services is recognized at fair value when the goods are obtained or over the service period, which is generally the vesting period. If the award contains performance conditions, the measurement date of the award is the earlier of the date at which a commitment for performance by the non-employee is reached or the date at which performance is reached. A performance commitment is reached when performance by the non-employee is probable because of sufficiently large disincentives for nonperformance.
Net Loss Per Share
The Company determines basic loss per share and diluted loss per share in accordance with the provisions of ASC 260, “Earnings per Share.” Basic net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding. Diluted net loss per share is calculated by dividing net loss by the weighted-average common shares outstanding during the period using the treasury stock method or the two-class method, whichever is more dilutive. The potentially dilutive stock options issued under the 2008 Stock plan and 2009 Stock Plan (described in Note 8, below) and the Series B preferred stock issuable under the Put/Call (described in Note 7, below) were not considered in the computation of diluted net loss per share because they would be anti-dilutive.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company is required to record all components of comprehensive loss in the financial statements in the period in which they are recognized. Net income (loss) and other comprehensive loss, including foreign currency translation adjustments and unrealized gains and losses on investments are reported, net of their related tax effect, to arrive at a comprehensive loss. For the years ended December 31, 2014 and 2013, comprehensive loss was equal to the net loss.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810,
Consolidation.
This ASU removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other reporting entities from GAAP. In addition, the ASU eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of operations, cash flows, and stockholders’ equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. In addition, ASU 2014-10 requires an entity that has not commenced principal operations to provide disclosures about the risks and uncertainties related to the activities in which the entity is currently engaged and an understanding of what those activities are being directed toward. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company has elected to adopt this ASU and its adoption resulted in the removal of previously required development stage disclosures. Adoption of this ASU did not impact the Company’s financial position, operations or cash flows.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
In August 2014, the FASB issued ASU No. 2014-15,
Presentation of Financial Statements — Going Concern (Subtopic 205-40) — Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern
, which provides guidance regarding management’s responsibility to assess whether substantial doubt exists regarding the ability to continue as a going concern and to provide related footnote disclosures. In connection with preparing financial statements for each annual and interim reporting period, management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). This ASU is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Management is currently evaluating the new guidance and has not determined the impact this standard may have on the Company’s financial statements.
NOTE 4 — PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
|
Estimated Life
|
|
|
2014
|
|
|
2013
|
|
|
Computers and equipment
|
|
|
5 years
|
|
|
|
$
|
5,487
|
|
|
|
|
$
|
4,320
|
|
|
|
Furniture and fixtures
|
|
|
7 years
|
|
|
|
|
4,270
|
|
|
|
|
|
4,270
|
|
|
|
Leasehold improvements
|
|
|
7 years
|
|
|
|
|
—
|
|
|
|
|
|
3,500
|
|
|
|
Total property and equipment
|
|
|
|
|
|
|
|
9,757
|
|
|
|
|
|
12,090
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
(4,585
)
|
|
|
|
|
|
(4,605
)
|
|
|
|
Total property and equipment, net of accumulated depreciation
|
|
|
|
|
|
|
$
|
5,172
|
|
|
|
|
$
|
7,485
|
|
|
|
|
In 2014, the Company disposed its leasehold improvements. Depreciation expense of approximately $3,500 and $2,100 was recognized for the years ended December 31, 2014 and 2013, respectively, and is classified in general and administrative expense in the accompanying Statements of Operations.
NOTE 5 — NOTES PAYABLE AND CONVERTIBLE NOTES PAYABLE
In November 2013, the Company converted $37,500 of accounts payable into a note payable resulting from a compromise settlement with a vendor to complete satisfaction of all rights, claims, causes of action, indebtedness, and assertions that the vendor may have against the Company. The note payable has a term of one year and requires payments of $3,000 per month. The note payable has no stated interest rate and, due to the short-term nature of the note, the Company did not impute interest on the note. The note was fully paid in October 2014.
In 2014, the Company issued a combination of convertible notes payable and a note payable for a total principal balance of $605,000 (the “2014 Notes”) to two investors and converted all of these outstanding notes, plus accrued interest, into Series C preferred stock and warrants to purchase the Company’s common stock. These notes were convertible upon a qualified equity financing, pursuant to which the Company sold, with the principal purpose of raising capital, a new class of preferred stock with an aggregate sales price of not less than $3,000,000, including the principal and accrued but unpaid interest of any notes which are converted into the preferred securities (“Qualified Equity Financing”), or upon a change of control.
The convertible notes payables with a principal balance of $535,000 settle by providing the holder with a variable number of the Company’s shares with an aggregate fair value determined by reference to the debt principal outstanding. Because the value that the holder receives at settlement does not vary with the value of the Company’s equity shares, the settlement provision is not considered a conversion option for financial accounting purposes. Rather, these notes are recognized as share-settled debt at amortized cost.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Details of the 2014 Notes are as follows:
(a)
In May and September 2014, the Company issued a total of $455,000 of subordinated convertible promissory notes. These notes have a term of 12 months and bear interest at a rate of 8% per annum until paid in full. These notes are convertible upon a Qualified Equity Financing or upon a change of control at a price per share equal to seventy-five percent (75%) of the price per share paid by the investors (other than the 2014 Note holders) participating in the Qualified Equity Financing. The Company evaluated the change of control put embedded in these notes, which provides for cash settlement of these notes at two (2) times the principal amount upon a change of control, in accordance with ASC 815-15-25. The embedded change of control put is not clearly and closely related to the debt host instrument and therefore has been separately measured at fair value. The proceeds received upon issuing these notes was first allocated to the fair value of the embedded put with the remainder to the debt host instrument, resulting in a discount of approximately $21,000 to the face amount of the notes. The discount is amortized to interest expense over the term of the debt. The Company amortized approximately $10,000 to interest expense in the year ended December 31, 2014. Additionally, the Company recognized a gain of approximately $21,000 in the year ended December 31, 2014 due to the reduction in fair value of the put resulted from the decreased probability of a change in control occurring as the notes approached maturity and ultimate conversion.
(b)
In October 2014, the Company issued an $80,000 subordinated convertible promissory note. These notes have a term of 12 months and bear interest at a rate of 8% per annum until paid in full. The terms of this note provided an automatic conversion upon a Qualified Equity Financing at a price per share equal to seventy-five percent (75%) of the price per share paid by the investors (other than the 2014 Note holders) participating in the Qualified Equity Financing.
(c)
In addition, the Company issued a $70,000 principal amount unsecured promissory note on October 9, 2014. This note bears interest at a rate of 5% per annum until paid in full. All principal and accrued interest under this note must be paid upon demand of the holder at any time after one year of the date of the note.
As described in Note 7, all of the Company’s outstanding debt was converted or exchanged for Series C preferred stock and warrants to purchase common stock in December 2014.
NOTE 6 — COMMITMENTS AND CONTINGENCIES
Employment Agreements
Michael Step
On December 2, 2014, the Company entered into a letter agreement (the “Step Letter Agreement”), with Michael Step, the Company’s current Chief Executive Officer, setting forth the terms of his employment. The Step Letter Agreement provides that Michael Step will be entitled to an annual base salary of $360,000 and a total of three grants of options to purchase the Company’s common stock.
The first two options entitle Michael Step to purchase 4,662,741 and 524,646 of the Company’s shares, respectively, for an exercise price of $0.82 per share. Each of these options is immediately exercisable in full as of the date of the grant, with 44/48
ths
of the total number of shares covered by each option subject to a right of repurchase by the Company upon termination of Michael Step’s employment with the Company for any reason. This right of repurchase will lapse over a period of 44 months, with 1/44
th
of the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and on the first day of each month thereafter. In addition, the right of repurchase will lapse in its entirety upon a termination of the employment.
The third option will only become exercisable if by October 1, 2015, the Company has raised a minimum of $15,000,000 in one or more public and/or private equity financing transactions during the
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
prior twelve (12) month period. In the event the Company closes such a qualified financing (a “Qualified Financing”), the third option will become immediately exercisable for such number of shares of common stock as will, together with the shares subject to the first option, represent 7.5% of the shares of common stock deemed to be outstanding on a fully-diluted basis after giving effect to the issuance of the third option. In the event the Company does not close a Qualified Financing on or before October 1, 2015, the third option will terminate in its entirety and be of no further force or effect. Seventy-five percent (75%) of the shares subject to the third option are subject to a right of repurchase by the Company upon termination of Michael Step’s employment for any reason. This right of repurchase will lapse with respect to 1/36
th
of the total number of shares subject to the right of repurchase on the first day of each month following the date on which the third option first becomes exercisable. In addition, the right of repurchase will lapse in its entirety upon Michael Step’s termination of employment.
Under the terms of the agreement, Michael Step will be entitled to receive certain payments in the event his employment is terminated under certain scenarios.
Andrew Ritter and Ira Ritter
On September 25, 2013, the Company’s Board of Directors approved the Executive Compensation Plan (the “Compensation Plan”) setting forth the compensation to be paid to Andrew Ritter and Ira Ritter, the Company’s current President and also the Company’s former Chief Executive Officer, and Chief Strategic Officer (“CSO”), respectively, for their contributions to the Company. Pursuant to the terms of the Compensation Plan, the CEO’s salary is $225,000 per year and the CSO’s salary is $210,000 per year. Each executive under the Compensation Plan is entitled to an annual car allowance which, if utilized, results in a reduction of their base salary for the amount used in any one year.
Each executive received options to purchase up to 350,000 shares of the Company’s common stock (each referred to in this section as “Executive Options”) pursuant to the 2009 Stock Plan, which options will vest based on specific performance conditions, described below.
Cash Bonus and Executive Options Performance Conditions
Under the Compensation Plan, each covered executive is entitled to the following cash payments and vests in Executive Options upon the satisfaction of the events described below:
•
FDA Meeting Bonus Opportunities
. In April 2013, each executive received a one-time cash bonus of $10,000 for meeting with the FDA regarding RP-G28’s path to FDA approval. In addition, 16,875 shares of the Executive Options vested and became exercisable as of grant date of September 25, 2013. The balance of the 25,000 shares vests ratably on a monthly basis beginning on September 30, 2013.
•
Clinical Trial Funding Commitment Bonus Opportunities
. Each executive is entitled to receive a one-time cash bonus of $75,000 upon the Company’s receipt of a commitment by a third party to fund a Phase 2 or later clinical trial; provided, however, that no such bonus may be paid at any time the Company has less than $2,000,000 in available cash. In addition, upon the satisfaction of this milestone, 35% of 75,000 shares of the Executive Options will vest and become exercisable, with the balance of the 75,000 shares vesting in 36 equal monthly installments beginning on the last day of the following month.
•
Fundraising Bonus Opportunities
. Each executive is entitled to receive (i) a one-time cash bonus of $50,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of $2,000,000 and (ii) a one-time cash bonus of $150,000 upon the sale of additional equity capital for cash, in one or more closings after July 17, 2012 and/or the actual deployment of funds by a third party for a clinical trial in an aggregate amount in excess of $10,000,000 (which such bonus will be reduced by any cash bonus paid under subsection (i));
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
provided, however, that no bonus under subsection (i) or (ii) may be paid at any time the Company has less than $2,000,000 in available cash. In addition, upon the satisfaction of the milestone described in subsection (i), 35% of 50,000 shares of the Executive Options will vest and become exercisable, with the balance of the 50,000 shares vesting in 36 equal monthly installments beginning on the last day of the following month, and, upon satisfaction of the milestone described in subsection (ii), 35% of 100,000 shares of the Executive Options will vest and become exercisable, with the balance of the 100,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
•
License Event Bonus Opportunities
. Each executive is entitled to receive the following bonus payments in connection with the closing of an exclusive license of RP-G28 and/or any future product candidate developed by the Company from time to time during the term of the Compensation Plan by an/or any option to exclusively license such product candidate to a third party (referred to under the Compensation Plan as a “License Event”) with a minimum upfront payment to the Company of $2,000,000:
◦
A graduated cash bonus equal to (i) 5% of the Initial Period License Payment (as defined below) up to $5,000,000; (ii) 4% of the Initial Period License Payment in excess of $5,000,000 up to $10,000,000; and (iii) 3% of the Initial Period License Payment in excess of $10,000,000. In addition, upon the Company’s receipt of an Initial Period License Payment of more than $2,000,000, 35% of 325,000 shares of their Executive Options will vest and become exercisable, with the balance of the 325,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
◦
A cash bonus equal to 3% of any Annual Excess Milestone Payments (as defined below); provided, however that no such bonus may be paid at any time the Company has less than $1,000,000 in available cash. In addition, upon the Company’s receipt of an Annual Excess Milestone Payment, 35% of 50,000 shares of their Executive Options will vest and become exercisable, with the balance of the 50,000 shares vesting in 36 monthly installments beginning on the last day of the following month.
Notwithstanding any of the vesting provisions set forth above, the total potential number of Executive Options that may vest will not exceed 350,000 and the Executive Options will automatically terminate for any options for which a vesting date or performance condition has not been met by September 25, 2015.
For purposes of the Compensation Plan, the term “
Initial Period License Payment
” means the aggregate amount in cash received by the Company (not including any amount placed in escrow or subject to earn-outs, contingencies or other deferrals or earmarked to pay or reimburse the Company for research and development activities) in respect of the License Event over a 24 month period beginning on the closing date of such License Event (which period is referred to therein as the “
Initial Period
”). The term “
Annual
Excess Milestone Payments
” means the amount in cash in excess of $2,000,000 (not including any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals) that is received by the Company in respect of any Post-Closing Milestones (as defined below) in each 12-month period beginning on the expiration of the Initial Period. The term “
Post-Closing Milestones
” means any post-closing payouts set forth in the definitive transaction documentation executed in connection with a License Event; provided, however, that such amounts will not include any amounts that are determined by the Board of Directors to comprise all or any portion of any upfront payment made in connection with a License Event and any royalty payment based on product sales
The Compensation Plan provides that in the event that the Company enters into more than one License Event with respect to a single product candidate (i.e., for a separate field of use), then the proceeds of any such additional License Event will be included with the proceeds of the original License Event for purposes of meeting any of the financial thresholds set forth above. Under the terms of the Compensation Plan, receipt by the Company of more than one
bona
fide
term sheet for a proposed License Event with respect to RP-G28 will result in the payment of an additional 10% of any cash bonus earned as Clinical Trial and Fundraising Bonus or a License Event Bonus.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Under the terms of the Compensation Plan, each executive is entitled to receive certain payments in the event their employment is terminated under certain scenarios.
On December 2, 2014, the Company granted an aggregate of 3,241,905 options to the President and the CSO to purchase the Company’s common stock listed as follow:
(i)
150,000 fully vested options with an exercise price of $0.82,
(ii)
3,091,905 options which vest 25% upon the first anniversary of the vesting commencement date with the remaining options vesting monthly in equal amounts over 36 months with an exercise price equal to $0.82 for the first 1,089,284 options covered thereby, $1.30 for the next 1,001,311 options covered thereby, and $1.85 for the remaining balance;
Leases
The Company leases office and storage space for its headquarters in California. Starting September 1, 2013, the Company ended its previous lease agreement and executed a new office and storage lease agreement pursuant to a two-year agreement ending September 30, 2015, which calls for a minimum monthly rent of approximately $5,000 and an annual increase of 3%. Rent expense, recognized on a straight-line basis, was approximately $60,000 and $79,000 for the years ended December 31, 2014 and 2013, respectively, and is classified in general and administrative expenses in the accompanying Statements of Operations.
Legal
The Company is not currently involved in any legal matters arising in the normal course of business. From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict. Because of such uncertainties, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.
NOTE 7 — STOCKHOLDERS’ DEFICIT AND PREFERRED STOCK SUBJECT TO REDEMPTION
As of December 31, 2014, the Company is authorized to issue 50,000,000 shares of common stock with a par value of $0.001 per share and 7,200,000 shares, 1,687,500 shares, 4,220,464 shares, 7,658,182 shares, and 4,500,000 shares of Series A-1, Series A-2, Series A-3, Series B, and Series C preferred stock, respectively, with a par value of $0.001 per share. As of December 31, 2014, the Company has a total of 3,327,500 common shares issued and outstanding, and has 7,200,000, 1,687,500, 4,220,464, 6,188,188, and 2,991,016 shares of Series A-1, Series A-2, Series A-3, Series B, and Series C preferred stock issued and outstanding, respectively. The holders of outstanding shares of preferred stock will receive dividends, when, as and if declared by the Company’s Board of Directors. The annual dividend rate is $0.00556 per share for the Series A-1 preferred stock, $0.032 per share for the Series A-2 preferred stock, $0.04957 per share for the Series A-3 preferred stock, $0.09524 per share for the Series B preferred stock, and $0.104 for Series C preferred stock (subject to adjustment). The right to receive dividends on shares of Series B preferred stock is cumulative and the dividends accrue to holders of Series B preferred stock whether or not dividends are declared or paid in a calendar year. Undeclared dividends in arrears for the Series B preferred stock was approximately $1.7 million and $1.1 million as of December 31, 2014 and 2013, respectively. The right to receive dividends on shares of Series A and Series C preferred stock is not cumulative and no right to such dividends shall accrue to holders of Series A or Series C preferred stock.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Each share of the preferred stock will be automatically converted into fully-paid, non-assessable shares of common stock on a one-for-one basis, subject to adjustment (i) immediately prior to the closing of a firm commitment underwritten initial public offering provided that the aggregate gross proceeds to the Corporation are greater than $10,000,000 (“Qualified Public Offering), or (ii) upon the written request for such conversion from the holders of a majority of outstanding preferred stock.
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, Series B and Series C preferred stockholders receive an amount per share equal to the sum of the original purchase price of $1.19 plus all cumulative but unpaid dividends for Series B, and $1.30 for Series C. If upon the liquidation, the available assets are insufficient to permit payments to Series B and Series C holders, the entire assets legally available will be distributed in a pro rata basis among the holders in proportion to the full amounts they would otherwise be entitled to receive. Upon the completion of the distribution to the holders of the Series B and Series C preferred stock, the holders of the Series A preferred stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of all other capital stock by reason of their ownership of such stock, an amount per share equal to the sum of the original issue price per share of $0.07, $0.4, and $0.62 for Series A-1, Series A-2, and Series A-3 preferred stock, respectively, plus any accrued but unpaid dividends on the preferred stock. Any remaining assets are distributed pro rata among the preferred and common shareholders.
At any time after five years following the date of the initial issuance of the Series A-3, Series B, or Series C preferred stock, as applicable, and at the option of the holders of a majority of the then outstanding shares of Series A-3, Series B, and Series C preferred stock, voting together as a single class, the Company shall redeem any outstanding shares that have not been converted by paying cash in an amount per share equal to the liquidation preference of $0.62 and $1.30 for the Series A-3 and Series C preferred stock, respectively, and $1.19 per share, plus any accrued but unpaid dividends, for the Series B preferred stock. Given the holders’ redemption option, the Series A-3, Series B, and Series C preferred stock is classified as preferred stock subject to redemption in the accompanying Balance Sheets.
In November 2013, the Company entered into a Series B Preferred Stock Purchase Agreement with certain investors raising approximately $500,000, selling 419,995 shares of Series B preferred stock. Also in November 2013, the Company converted a total of approximately $135,000 in convertible notes, including accrued interest of approximately $9,000, into 103,235 shares of Series B preferred stock.
In December 2014, the Company issued an aggregate of 2,369,228 shares of Series C preferred stock, and warrants to purchase an aggregate of 2,369,228 shares of the Company’s common stock (the “Warrants”), for aggregate gross proceeds of $3,081,893 (the “Series C Financing”). Each Warrant has a term of seven (7) years and provides for the holder to purchase one share of the Company’s common stock at a purchase price of $1.30 per share of common stock. The Warrants are indexed to the Company’s own stock and classified within stockholders’ equity pursuant to ASC 815-40. The gross proceeds were allocated to the Series C preferred stock and Warrants on a relative fair value basis, resulting in a value of $1.10 and $0.20 for the Series C preferred stock and Warrants, respectively. The allocation of proceeds to the Warrants creates a discount of $0.20 in the initial carrying value of the Series C preferred stock, which will be recognized as accretion, similar to preferred stock dividends, over the five-year period prior to optional redemption by the holders.
In connection with the Series C Financing, all of the 2014 Notes were converted into shares of Series C preferred stock and Warrants as follows:
•
$535,000 unpaid principal plus accrued interest of $18,342 on convertible notes described in Note 5 converted into 567,529 shares of Series C preferred stock and 567,529 Warrants
•
$70,000 unpaid principal plus accrued interest of $537 on note payable described in Note 5 extinguished and converted into 54,259 shares of Series C preferred stock and 54,259 Warrants
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Notes with an unpaid principal balance of $535,000 were converted into shares of Series C preferred stock and warrants to purchase shares of common stock at 75% of the price paid by other purchasers of the Series C Financing. The Company recognized additional interest expense of $184,445 upon conversion, calculated as the fair value of incremental shares and warrants received by the holders compared to converting the outstanding debt and accrued interest at 100% of the price paid by purchasers of the Series C Financing. The note with an unpaid principal balance of $70,000 was exchanged for shares of Series C preferred stock and warrants to purchase shares of common stock at a price per share equal to the price per share paid by purchasers of the Series C Financing. As such, there was no gain recognized or loss incurred upon extinguishment of the note.
Prepaid Forward Sale of Preferred Stock
On November 30, 2010, the Company concurrently entered into a Research and Development Agreement & License (“R&D Agreement”) and a Put and Call Option Agreement (“Put/Call”) with two commonly controlled entities, Kolu Pohaku Technologies, LLC (“KPT”) and Kolu Pohaku Management, LLC (“KPM”). The agreement was subsequently amended on July 6, 2011, September 30, 2011, February 6, 2012 and November 4, 2013 to increase the funding received by the Company.
Research and Development Agreement & License
The R&D Agreement between the Company and KPM and KPT, a Qualified High Technology Business within the meaning of Hawaii Revised Statutes, call for KPT to make a series of payments to the Company totaling $1,750,000 in exchange for the Company performing research and development activities in Hawaii for the benefit of KPT. The research project covered by the R&D Agreement is for the initial phase of research performed in Hawaii, including the conduct of Phase II clinical trials, for RP-G28, the Company’s drug candidate (the “KP Research”). Pursuant to the terms of the R&D Agreement, we maintain ownership of the results of our ongoing research related to RP-G28, but KPT maintains ownership of the results of the KP Research. Inventions, developments, and improvements arising out of the KP Research are owned by KPT. The Company bears any costs involved in obtaining patents for any inventions, developments or improvements resulting from the KP Research. In exchange for the irrevocable, perpetual, exclusive, worldwide right and license to the results of the KP Research, as they are generated under this R&D Agreement, the Company will pay a quarterly royalty payment to KPT of $32,000 commencing March 31, 2015 and continuing through December 31, 2035.
Put and Call Option Agreement
Anytime after December 31, 2014, the Company has the option to put 1,469,994 shares of the Company’s Series B Preferred Stock (“Series B”) to KPM and KPM has the option to call the same amount of shares of Series B from the Company. The number of shares was determined by dividing the $1,750,000 of payments made by KPT to the Company under the R&D Agreement by the Series B original issue price of $1.19. Irrespective of whether the above exercise date has passed, the Put/Call automatically exercises immediately prior to any of the following events: (i) a qualified public offering by the Company, (ii) any liquidation or winding up of the Company, (iii) license of the Company’s RP-G28 technology, or (iv) complete redemption or conversion of the Company’s outstanding Series B. Exercise of the Put/Call under any scenario results in full satisfaction of the Company’s obligation to make royalty payments to KPT under the R&D Agreement and KPT’s right, title and interest in the research conducted pursuant to the R&D Agreement becomes the property of the Company. In the event of a breach of the R&D Agreement by the Company, KPM & KPT’s sole remedy is to either exercise the call option, even if before December 31, 2014, or institute an action for money damages in an amount not to exceed the payments under the R&D Agreement.
The R&D Agreement and the Put/Call have been recognized on a combined basis, pursuant to ASC 815-10-15-9, as a fully prepaid forward sale contract on the Company’s Series B preferred stock. The fully prepaid forward sale contract is a hybrid instrument comprising (1) a debt host instrument and (2) an
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
embedded forward sale contract, requiring the Company to issue 1,469,994 shares of the Company’s Series B for no further consideration. Payments received by the Company, totaling $1,750,000, are recognized as preferred stock subject to redemption in the Balance Sheet.
NOTE 8 — STOCK-BASED COMPENSATION
Terms of the Company’s share-based compensation are governed by the Company’s 2009 Stock Plan and 2008 Stock Plan (collectively the “Plans”.) The Plans permit the Company to grant non-statutory stock options, incentive stock options and stock purchase rights to the Company’s employees, outside directors and consultants; however, incentive stock options may only be granted to the Company’s employees. As of December 31, 2014, the maximum aggregate number of shares of common stock that may be issued is 500,000 and 14,630,034 shares under the 2009 Stock Plan and 2008 Stock Plan, respectively, subject to adjustment due to the effect of any stock split, stock dividend, combination, recapitalization or similar transaction. The exercise price for each option is determined by the Board of Directors, but will be (i) in the case of an incentive stock option, (A) granted to an employee who, at the time of grant of such option, is a 10% Holder, no less than 110% of the fair market value per share on the date of grant; or (B) granted to any other employee, no less than 100% of the fair market value per share on the date of grant; and (ii) in the case of a nonstatutory stock option, no less than 100% of the fair market value per share on the date of grant. The options awarded under the Plans shall vest as determined by the Board of Directors but shall not exceed a ten-year period.
Options Issued to Directors and Employees as Compensation
Pursuant to the terms of the Plans, from inception to 2013, the Company has issued an aggregate of 1,474,134 options to its executive officers and employees of the Company. Of these, 187,067 options were forfeited during 2013 and 1,287,067 options remain outstanding as of December 31, 2013. The exercise prices of these option grants, as determined by the Company’s Board of Directors, range from $0.11 to $0.18 per share, and a portion of these vest subject to certain performance conditions described in Note 6. The Company’s management estimated that all of the performance conditions for the options granted to its executive officers would be met by September 25, 2015.
In 2014, the Company granted an aggregate of 11,631,197 non-qualified 10-year term options to purchase the Company’s common stock to its executive officers. As of December 31, 2014, 12,518,264 options remain outstanding. The exercise prices of these option grants, as determined by the Company’s Board of Directors, range from $0.82 to $1.85 per share. The Company has recognized an expense for these services within general and administrative expense in the accompanying Statements of Operations of approximately $695,000 and $6,000 for the years ended December 31, 2014 and 2013, respectively. As of December 2014, there was approximately $4.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.9 years.
Options Issued to Nonemployees for Services Received
The Company has issued options to purchase an aggregate of 762,000 shares of the Company since inception to its consultants under the Plans. Of these, 490,937 options were forfeited or exercised, while 271,063 options remain outstanding as of December 31, 2014. The exercise prices of the outstanding options, as determined by the Company’s Board of Directors, range from $0.10 to $0.16 per share. These outstanding options, with the exception of an option to purchase an aggregate of 52,000 shares granted to a consultant, vest 25% upon the first anniversary of the vesting commencement date with the remaining options vesting monthly in equal amounts over 36 months. In March 2011, the Company granted an option to a consultant to purchase an aggregate of 52,000 shares with an exercise price of $0.14 which vests 25% on the date of grant with the remaining options vesting monthly in equal amounts over 36 months. The Company recognized an expense for these services of approximately $13,000 and $8,400 for the years ended December 31, 2014 and December 31, 2013, respectively, within research and development expense in the accompanying Statements of Operations.
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Options Valuation
The Company calculates the fair value of stock-based compensation awards granted to employees and nonemployees using the Black-Scholes option-pricing method. If the Company determines that other methods are more reasonable, or other methods for calculating these assumptions are prescribed by regulators, the fair value calculated for the Company’s stock options could change significantly. Higher volatility and longer expected lives would result in an increase to stock-based compensation expense to non-employees determined at the date of grant. Stock-based compensation expense to non-employees affects the Company’s selling, general and administrative expenses and research and development expenses.
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, which determine the fair value of stock-based awards. The assumptions used in the Black-Scholes option-pricing method for the year ended December 31, 2014 is set forth below:
|
|
|
|
Year ended December 31, 2014
|
|
|
|
|
|
Low
|
|
|
High
|
|
|
Expected dividend yield
|
|
|
|
|
0.00
%
|
|
|
|
|
|
0.00
%
|
|
|
|
Expected stock-price volatility
|
|
|
|
|
51.45
%
|
|
|
|
|
|
64.24
%
|
|
|
|
Risk-free interest rate
|
|
|
|
|
0.88
%
|
|
|
|
|
|
3.04
%
|
|
|
|
Expected term of options
|
|
|
|
|
5
|
|
|
|
|
|
10
|
|
|
|
Stock price
|
|
|
|
$
|
0.16
|
|
|
|
|
$
|
0.82
|
|
|
•
Expected term.
The expected term represents the period that the stock-based awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method provided by the SEC. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options.
•
Expected volatility.
As the Company’s common stock has never been publicly traded, the expected volatility is derived from the average historical volatilities of publicly traded companies within the Company’s industry that the Company considers to be comparable to the Company’s business over a period approximately equal to the expected term.
•
Risk-free interest rate.
The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the expected term.
•
Expected dividend.
The expected dividend is assumed to be zero as the Company has never paid dividends and have no current plans to pay any dividends on the Company’s common stock.
In addition to the assumptions used in the Black-Scholes option-pricing model, the Company also estimates a forfeiture rate to calculate the stock-based compensation for the Company’s equity awards. The Company will continue to use judgment in evaluating the expected volatility, expected terms and forfeiture rates utilized for the Company’s stock-based compensation calculations on a prospective basis.
Significant factors, assumptions and methodologies used in determining the estimated fair value of the Company’s common stock
The Company is also required to estimate the fair value of the common stock underlying the Company’s stock-based awards when performing the fair value calculations using the Black-Scholes option-pricing model. The Company’s Board of Directors, with the assistance of management, determined the fair value of the Company’s common stock on each grant date. Option grants are based on the estimated fair value of the Company’s common stock on the date of grant, which is determined by taking into account several factors, including the following:
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
•
the prices at which the Company sold the Company’s convertible preferred stock and the rights, preferences, and privileges of the convertible preferred stock relative to those of the Company’s common stock, including the liquidation preferences of the convertible preferred stock;
•
important developments in the Company’s operations;
•
the Company’s actual operating results and financial performance;
•
conditions in the Company’s industry and the economy in general;
•
stock price performance of comparable public companies;
•
the estimated likelihood of achieving a liquidity event, such as an IPO or an acquisition of the Company, given prevailing market conditions; and
•
the illiquidity of the common stock underlying stock options.
The table below presents the prices received from sales to third parties of the Company’s common stock and various classes of the Company’s preferred stock from inception to date:
|
|
Year
|
|
|
Share Class
|
|
|
Price per Share
|
|
|
|
2005
|
|
|
Common Stock
(a)
|
|
|
$0.25
|
|
|
|
2006
|
|
|
Series A-2 Preferred Stock
(a)
|
|
|
$0.40
|
|
|
|
2008 – 2009
|
|
|
Series A-3 Preferred Stock
|
|
|
$0.62
|
|
|
|
2010 – 2013
|
|
|
Series B Preferred Stock
|
|
|
$1.19
|
|
|
|
2014
|
|
|
Series C Preferred Stock
|
|
|
$1.30
|
|
(a)
After giving effect to the Company's conversion from an LLC to a corporation
For options issued from inception to 2013, in determining the estimated fair value of the Company’s common stock, the Company’s Board of Directors, with the assistance of management, used the market approach to estimate the enterprise value of the Company in accordance with the American Institute of Certified Public Accountants (“AICPA”) Accounting and Valuation Guide, Valuation of Privately-Held Company Equity Securities Issued as Compensation (the “AICPA Guide”) for the three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010. The Market Approach is one of the three approaches (along with the Income Approach and Asset Approach) used to estimate enterprise and equity value. The market approach employs analysis using comparable companies in determining the value of the entity. Both public and private companies, if publicly available information exists, are considered in the market approach. Two information points commonly available — company valuation and transaction value — are used for their respective methodologies. There are a number of different methods within the Market Approach that may be used: the three main methods utilized are: the Guideline Pubic Companies Method; the Guideline Transactions Method; and the Backsolve Method.
Given the early stage of the Company, the Backsolve Method was used to estimate the fair value of the Company’s securities. This method derives an implied market value of invested capital from a transaction involving a company’s own securities. The price of a company’s security that was involved in a recent arms-length transaction is used as a reference point in an allocation of value. The Company first raised additional capital through the sales of the Company’s LLC units. These units later converted into common shares and preferred shares upon the Company’s conversion to a corporation. Subsequent to the Company’s corporation conversion, the Company raised additional capital through the sales of the Company’s Series A-1, Series A-2, Series A-3, Series B, and Series C preferred shares at the price of $0.07, $0.40, $0.62, $1.19, and $1.30, respectively.
The Company valued LLC units and common stock (after converting to a corporation) from inception through 2009 by reference to the Company’s sales of units and/or common stock & preferred stock over the period. Beginning in 2010, the Company valued the Company’s common stock using the Backsolve Method. The Backsolve Method requires considering the rights and preferences of each class of equity and
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
solving for the total market value of invested capital that is consistent with a recent transaction in the Company’s own securities, considering the rights and preferences of each class of equity. However, management has decided that the liquidation preferences between the Company’s preferred shares and common shares are immaterial for a pre-revenue company.
Per the AICPA Guide, the Backsolve Method is generally the most reliable indicator of value of early-stage enterprises with no product revenue or cash flow, if relevant and reliable transactions have occurred in the Company’s equity securities. This methodology is also prescribed by the AICPA when a valuation is conducted in close proximity to the date of a financing transaction, and when other methodologies are deemed less reliable.
The stage of development of the Company’s compound was reflected in the Company’s selection of the term and volatility estimates used in the analysis. The estimate of the term considers the Company’s existing cash runway and the time to the next potential financing or liquidity event, while the volatility estimate reflects the relative riskiness of the Company’s equity securities (or asset base) relative to the general stock market.
Management estimated the implied market value of invested capital of the Company by backsolving for the purchase price of the Company’s preferred shares for one common share through the option-pricing method. The premise of this method is that the transaction implied a market price for a share which in turn implied values for the other classes of equity based on relative claims on equity value, such as liquidation preferences and conversion rights. The application of the backsolve method considering the Company’s capital structure yielded a total market value of invested capital of approximately $15.5 million, $14.4 million, and $8.9 million, of which approximately $819,000, $870,000, and $670,000 were allocated to the total value of common stock as of the Company’s three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, respectively.
On the three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, after estimating the market value of invested capital, the Company allocated it to the various equity classes comprising the subject company’s capitalization table. This process ultimately results in creating a final estimate of value for the subject company’s underlying equity interests. While there are many different value allocation methods, these various methods can be grouped into three general categories as defined by the AICPA Guide, one of which is the Option-Pricing Method (OPM).
The Company used the OPM to allocate market value of invested capital to the various equity classes and debt comprising the Company’s capitalization structure. The Company chose the OPM over other acceptable methods due to the complex capital structure, the uncertainty related to market conditions, and the lack of visibility on an imminent exit event. Under the OPM, each equity class is modeled as a call option with a distinct claim on the equity of the Company. The option’s exercise price is based on the Company’s total equity value available for each participating equity holder. The characteristics of each equity class determine the equity class’ claim on the total equity value. By constructing a series of options in which the exercise price is set at incremental levels of value, which correspond to the equity value necessary for each level of equity to participate, the Company determined the incremental option value of each series. When multiplied by the percentage of ownership of each equity class participating under that series, the result is the incremental value allocated to each class under that series.
The OPM relies on the Black-Scholes option-pricing model to value the call options on the Company’s invested capital. The following inputs were applied in the Black-Scholes calculations of the OPM:
|
|
|
|
Valuation Dates
|
|
|
|
|
|
November 7, 2013
|
|
|
July 31, 2012
|
|
|
December 31, 2010
|
|
|
Risk-free rate
|
|
|
|
|
0.55
%
|
|
|
|
|
|
0.57
%
|
|
|
|
|
|
2.01
%
|
|
|
|
Maturity (years)
|
|
|
|
|
3.00
|
|
|
|
|
|
4.00
|
|
|
|
|
|
5.00
|
|
|
|
Volatility
|
|
|
|
|
58.00
%
|
|
|
|
|
|
61.00
%
|
|
|
|
|
|
61.00
%
|
|
|
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
Discounts ranging from 35.8% to 40% were applied for lack of control and lack of marketability for the common stock. The calculation resulted in a fair value for the common stock of $0.163, $0.167, and $0.144 per share as of the Company’s three valuation dates of November 7, 2013, July 31, 2012, and December 31, 2010, respectively.
For options issued in 2014, given the Company’s distinct possible exit scenarios of an initial public offering, the Company used the probability weighted expected return method (PWERM) to estimate the fair value of the Company’s common equity. Under this method, an analysis of future values of a company is performed for several likely liquidity scenarios. The value of the common stock is determined for each scenario at the time of each future liquidity event and discounted back to the present using a risk-adjusted discount rate. The present values of the common stock under each scenario are then weighted based on the probability of each scenario occurring to determine the value for the common stock. The Company’s management determined the probability weighting of potential liquidity events to be 45% for an initial public offering and 55% for other scenarios, which represents all other likely outcomes for the Company.
Management estimated the implied market value of invested capital of the Company by backsolving for the purchase price of the Company’s preferred shares for one common share through the use of OPM. The application of the backsolve method considering the Company’s capital structure yielded a total market value of invested capital of approximately $25.2 million, of which approximately $1.4 million was allocated to the total value of common stock as of the Company’s valuation date of October 31, 2014.
Given the lack of marketability for the common stock, the Company applied a discount of 21.4% for using the average strike put option approach. This resulted in a probability weighted common share value, after adjustment, of $0.82 per share as of valuation date of October 31, 2014.
Stock-based Compensation Summary Tables
Information regarding the Company’s stock option grants to the Company’s employees and non-employees, along with the estimated fair value per share of the underlying common stock, for stock options granted since 2005 is summarized as follows:
|
Grant Date
|
|
|
Number of Common
Shares Underlying
Options Granted
|
|
|
Exercise Price
per Common
Share
|
|
|
Estimated Fair Value
per Share of
Common Stock
|
|
|
Intrinsic Value
Option
|
|
|
2005
|
|
|
|
|
417,000
|
|
|
|
$0.01
|
|
|
|
$
|
0.25
|
|
|
|
$0.24
|
|
|
2009
|
|
|
|
|
433,000
|
|
|
|
$0.10 – $0.11
|
|
|
|
$
|
0.62
|
|
|
|
$0.51 – $0.52
|
|
|
2011
|
|
|
|
|
242,000
|
|
|
|
$0.14
|
|
|
|
$
|
0.14
|
|
|
|
$0.00
|
|
|
2012
|
|
|
|
|
429,134
|
|
|
|
$0.16
|
|
|
|
$
|
0.16
|
|
|
|
$0.00
|
|
|
2013
|
|
|
|
|
715,000
|
|
|
|
$0.16 – $0.18
|
|
|
|
$
|
0.16
|
|
|
|
$0.00
|
|
|
2014
|
|
|
|
|
11,631,197
|
|
|
|
$0.82 – $1.85
|
|
|
|
$
|
0.82
|
|
|
|
$0.00
|
|
The following represents a summary of the options granted to employees and non-employees outstanding at December 31, 2014 and changes during the period then ended:
|
|
|
|
Options
|
|
|
Weighted Average
Exercise Price
|
|
|
Outstanding at December 31, 2013
|
|
|
|
|
1,621,567
|
|
|
|
|
$
|
0.151
|
|
|
|
Granted
|
|
|
|
|
11,631,197
|
|
|
|
|
|
1.080
|
|
|
|
Exercised/Expired/Forfeited
|
|
|
|
|
(463,437
)
|
|
|
|
|
|
(0.124
)
|
|
|
|
Outstanding at December 31, 2014
|
|
|
|
|
12,789,327
|
|
|
|
|
$
|
0.997
|
|
|
|
Exercisable at December 31, 2014
|
|
|
|
|
1,159,997
|
|
|
|
|
$
|
0.567
|
|
|
|
Expected to be vested
|
|
|
|
|
11,629,330
|
|
|
|
|
$
|
1.040
|
|
|
|
|
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 —
Related Party Transactions
A director of the Company is a managing director of Javelin Venture Partners GP, LLC, the general partner of Javelin Venture Partners GP, L.P., which holds a significant investment in the Company’s Series A-1, Series A-2, Series A-3, Series B, and Series C preferred stock.
Prior to and during his employment with the Company, Mr. Ira Ritter served as CEO of Andela Group Inc, (“Andela”) a company he founded in 1987, which is involved in corporate management, strategic and financial consulting. During the years ended December 31, 2014 and 2013, the Company incurred approximately $176,000 and $197,000, respectively, of expenses for services received from Andela, all of which were classified in general and administrative expenses in the Statements of Operations as Mr. Ritter was an employee of the Company at the time of the services.
Other than disclosed, the Company has not entered into or been a participant in any transaction in which a related party had or will have a direct or indirect material interest.
NOTE 10 — INCOME TAXES
As of December 31, 2014, the Company has net operating loss carryforwards of approximately $9.7 million available to reduce future taxable income, if any, for Federal and state income tax purposes. The U.S. federal and state net operating loss carryforwards will begin to expire in 2028.
As of December 31, 2014, the Company has research and development credit carryforwards of approximately $200,000 available to reduce future taxable income, if any, for Federal and state income tax purposes. The Federal credit carryforwards begin to expire in 2028. California credits have no expiration date.
Under the Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss and research tax credit carryforwards to offset taxable income may be limited based on cumulative changes in ownership. The Company has not completed an analysis to determine whether any such limitations have been triggered as of December 31, 2014. The Company has no income tax affect due to the recognition of a full valuation allowance on the expected tax benefits of future loss carry forwards based on uncertainty surrounding realization of such assets.
A reconciliation of the statutory income tax rates and the Company’s effective tax rate is as follows:
|
|
|
|
December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Statutory U.S. federal rate
|
|
|
|
|
34.0
%
|
|
|
|
|
|
34.0
%
|
|
|
|
State income tax, net of federal benefit
|
|
|
|
|
3.9
%
|
|
|
|
|
|
3.9
%
|
|
|
|
Meals & entertainment
|
|
|
|
|
(0.3
)%
|
|
|
|
|
|
(0.4
)%
|
|
|
|
Others
|
|
|
|
|
(0.5
)%
|
|
|
|
|
|
(2.8
)%
|
|
|
|
Forward sale of preferred stock
|
|
|
|
|
(2.3
)%
|
|
|
|
|
|
0.0
%
|
|
|
|
Non-cash interest on conversion
|
|
|
|
|
(2.8
)%
|
|
|
|
|
|
0.0
%
|
|
|
|
Valuation allowance
|
|
|
|
|
(32.0
)%
|
|
|
|
|
|
(34.7
)%
|
|
|
|
Provision for income taxes
|
|
|
|
|
0.0
%
|
|
|
|
|
|
0.0
%
|
|
|
|
|
RITTER PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
The tax effects of the temporary differences and carry forwards that give rise to deferred tax assets consist of the following:
|
|
|
|
As of December 31,
|
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
|
|
$
|
3,675,012
|
|
|
|
|
$
|
3,306,227
|
|
|
|
Patent costs
|
|
|
|
|
318,652
|
|
|
|
|
|
243,722
|
|
|
|
Capitalized interest
|
|
|
|
|
85,568
|
|
|
|
|
|
8,518
|
|
|
|
Accrued vacation
|
|
|
|
|
10,237
|
|
|
|
|
|
6,192
|
|
|
|
Research and development credit
|
|
|
|
|
200,482
|
|
|
|
|
|
73,484
|
|
|
|
Stock based compensation
|
|
|
|
|
383,381
|
|
|
|
|
|
115,314
|
|
|
|
Other
|
|
|
|
|
4,460
|
|
|
|
|
|
4,828
|
|
|
|
Gross deferred tax assets
|
|
|
|
|
4,677,792
|
|
|
|
|
|
3,758,285
|
|
|
|
Valuation allowance
|
|
|
|
|
(4,677,792
)
|
|
|
|
|
|
(3,758,285
)
|
|
|
|
Net deferred tax assets
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
|
In 2009 the Company adopted the accounting guidance for uncertainty in income taxes pursuant to ASC 740-10. The adoption of this guidance did not have a material impact on the Company’s financial statements. The Company did not record any accruals for income tax accounting uncertainties for the year ended December 31, 2014 and 2013, respectively.
The Company’s policy is to recognize interest and penalties that would be assessed in relation to the settlement value of unrecognized tax benefits as a component of income tax expense. The Company did not accrue either interest or penalties from inception through December 31, 2014.
The Company does not have any unrecognized tax benefits that will significantly decrease or increase within 12 months of December 31, 2014.
The Company’s major tax jurisdictions are the United States and California. All of the Company’s tax years will remain open three and four years for examination by the Federal and state tax authorities, respectively, from the date of utilization of the net operating loss. The Company does not have any tax audits pending.
NOTE 11 — SUBSEQUENT EVENTS
The Company has evaluated subsequent events through March 13, 2015, which is the date the financial statements were available to be issued.
Shares
Common Stock
PROSPECTUS
Aegis Capital Corp
, 2015
Through and including , 2015 (the 25
th
day after the commencement of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered. All the amounts shown are estimates except the SEC registration fee, the FINRA filing fee and the NASDAQ listing fee.
|
|
|
|
Total
|
|
|
SEC registration fee
|
|
|
|
$
|
2,091.60
|
|
|
|
FINRA filing fee
|
|
|
|
$
|
3,200.00
|
|
|
|
NASDAQ listing fee
|
|
|
|
$
|
*
|
|
|
|
Blue sky qualification fees and expenses
|
|
|
|
$
|
*
|
|
|
|
Printing and engraving expenses
|
|
|
|
$
|
*
|
|
|
|
Legal fees and expenses
|
|
|
|
$
|
*
|
|
|
|
Accounting fees and expenses
|
|
|
|
$
|
*
|
|
|
|
Transfer agent and registrar fees
|
|
|
|
$
|
*
|
|
|
|
Miscellaneous
|
|
|
|
$
|
*
|
|
|
|
Total
|
|
|
|
$
|
*
|
|
|
|
|
*
To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Our restated certificate of incorporation provides that we shall indemnify, to the fullest extent authorized by the Delaware General Corporation Law, each person who is involved in any litigation or other proceeding because such person is or was a director or officer of Ritter Pharmaceuticals, Inc. or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith. Our certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 30 days after we receive a written claim for such indemnification, our certificate of incorporation and our bylaws authorize the claimant to bring an action against us and prescribe what constitutes a defense to such action.
Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney’s fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (
i.e
., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, our certificate of incorporation eliminates the liability of a director to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising:
•
from any breach of the director’s duty of loyalty to us or our stockholders;
•
from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
•
under Section 174 of the Delaware General Corporation Law; or
•
from any transaction from which the director derived an improper personal benefit.
We carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity as directors and officers.
In addition, we have entered into indemnification agreements with each of our current directors and executive officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.
Additionally, reference is made to the Underwriting Agreement, the form of which is filed as Exhibit 1.1 hereto, which provides for indemnification by the underwriters of Ritter Pharmaceuticals, Inc., our directors and officers who sign the registration statement and persons who control Ritter Pharmaceuticals, Inc., under certain circumstances.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act. The following issuances have not been adjusted to reflect the 1-for- reverse stock split.
(a)
Issuances of Capital Stock
From December 1, 2011 to December 31, 2012, we raised approximately $2.95 million through private placements selling 2,477,990 shares of Series B preferred stock. Concurrent with these sales, we converted a total of approximately $992,000 in convertible notes, including accrued interest of approximately $19,600, into 815,653 shares of Series B preferred stock.
In November 2013, we entered into a Series B Preferred Stock Purchase Agreement with certain investors raising approximately $500,000, selling 419,995 shares of Series B preferred stock. Also in November 2013, we converted a total of approximately $135,000 in convertible notes, including accrued interest of approximately $9,000, into 103,235 shares of Series B preferred stock.
On December 4, 2014, we issued an aggregate of 1,149,397 shares of our Series C Preferred Stock and warrants to purchase an aggregate of 1,149,397 shares of our common stock to certain investors, including Javelin and Javelin I, in the Initial Series C Closing pursuant to the Series C Preferred Stock Purchase Agreement. The aggregate purchase price paid by the investors was approximately $1.31 million (consisting of cash and cancellation of certain promissory notes issued in 2014, as described below).
On December 8, 2014, we issued an aggregate of 1,833,927 shares of our Series C Preferred Stock and warrants to purchase an aggregate of 1,833,927 shares of our common stock to Javelin I in our Second Series C Closing pursuant to the Series C Preferred Stock Purchase Agreement. The aggregate purchase price paid by Javelin was approximately $2.39 million.
On December 18, 2014, we issued an aggregate of 7,692 shares of our Series C Preferred Stock and warrants to purchase an aggregate of 7,692 shares of our common stock to one investor in our Third Series C Closing pursuant to the Series C Preferred Stock Purchase Agreement. The aggregate purchase price paid by the investor was $10,007.
No underwriters were used in the foregoing transactions. The securities described above were issued and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. Each of the purchasers in these transactions represented to us in connection with its purchase that it was acquiring the securities for investment and not for distribution and that it could bear the risks of the investment. Each purchaser received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from registration. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.
(b)
Promissory Notes
From December 1, 2011 to December 31, 2012, we issued $1,071,446 face amount of convertible subordinated bridge notes, or the 2012 Notes, subject to a note purchase agreement dated February 6, 2012. The 2012 Notes bear an interest rate of 6% per annum and a have a term of nine months. The 2012 Notes were to automatically convert if we sold more than $5 million of securities. Such sales included preferred stock sales, convertible note sales, and conversions of existing convertible debt and accrued interest into preferred stock. Upon such an automatic conversion, the principal and interest of the 2012 Notes would convert into shares of the preferred instrument comprising the most recent preferred offering at 90% of the price paid by other purchasers of the recent preferred stock offering or a price per share equal to $50 million divided by the fully-diluted outstanding capital just prior to the preferred equity raise. The 2012 Notes also were to convert upon a change of control at a price per share equal to $50 million divided by the fully diluted outstanding capital just prior to the change of control. However, upon a change of control, the note holder could elect to cash settle at two (2) times the principal amount of the 2012 Notes. If there was no offering of preferred equity or change of control before the 2012 Notes matured, then all outstanding principal and accrued interest would convert into preferred shares “as soon as practicable” at a price per share equal to $50 million divided by the fully diluted outstanding capital just prior to conversion.
In 2012, we converted a total of approximately $992,000 of the 2012 Notes, including accrued interest of approximately $19,600, into 815,653 shares of Series B preferred stock. In 2013, we converted the remaining balance of the 2012 Notes of approximately $135,000 in convertible notes, including accrued interest of approximately $9,000 into a total of 103,235 Series B preferred stock.
In November 2013, we converted $37,500 of accounts payable into a note payable resulting from a compromise settlement with a vendor to complete satisfaction of all rights, claims, causes of action, indebtedness, and assertions that the vendor may have against us. The note payable had a term of one year and required payments of $3,000 per month. The note payable had no stated interest rate and, due to the short-term nature of the note, we did not impute interest on the note. The outstanding balance of the note was $31,500 as of December 31, 2013. This note payable was fully paid during 2014.
We issued two subordinated convertible notes with principal amounts of $25,000 and $350,000 on May 23, 2014, an $80,000 principal amount subordinated convertible note on September 8, 2014, and an $80,000 principal amount subordinated convertible note on October 20, 2014, which notes bore interest at a rate of 8% per annum until paid in full. Each of these notes was converted into shares of Series C preferred stock in the Series C Financing.
In addition, we issued a $70,000 principal amount unsecured promissory note on October 9, 2014. This note bore interest at a rate of 5% per annum until paid in full. This note was converted into shares of Series C preferred stock in the Series C Financing.
No underwriters were used in the foregoing transactions. The securities described above were issued and sold in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated under the Securities Act. Each of the purchasers in these transactions represented to us in connection with its purchase that it was acquiring the securities for investment and not for distribution and that it could bear the risks of the investment. Each purchaser received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from registration. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.
(c)
Grants and Exercises of Stock Options
Since December 1, 2011, we have granted stock options to purchase an aggregate of 12,775,331 shares of our common stock, with 444,134 of such stock options having an exercise price of $0.16 per share (of which 250,505 have forfeited as of December 31, 2014), 7,625,955 of such stock options having an exercise price of $0.82 per share, 700,000 of such stock options having an exercise price of $0.1782, 2,002,622 of such stock options having an exercise price of $1.30, and 2,002,620 of such stock options having an exercise price of $1.85 per share to employees and non-employees pursuant to our stock plans.
As described in the section above entitled “Outstanding Equity Awards at Fiscal Year-End,” we also granted an option to Michael Step on December 2, 2014 for a number of shares of common stock as will, together with the 4,622,741 shares subject to the option granted to Mr. Step on December 2, 2014, represent in the aggregate 7.5% of the shares of common stock deemed to be outstanding on a fully-diluted basis as of the date that we have raised in the aggregate a minimum of $15,000,000 in one or more private and/or public offerings, or a Qualified Financing, after giving effect to (i) the issuance of the shares issued in the Qualified Financing, (ii) the issuance of this option, and (iii) any adjustments. If we do not close a Qualified Financing on or before October 1, 2015, this option will terminate in its entirety and be of no further force and effect. If we do close a Qualified Financing on or before October 1, 2015, the option will become immediately exercisable in full, with 75% of the shares underlying the option to be subject to a repurchase right by us upon Mr. Step’s ceasing to be a service provider to us for any reason. Such right of repurchase will lapse with respect to 1/36th of the shares subject to the right of repurchase on the first day of each month following the date on which the option first becomes exercisable, subject to Mr. Step’s continuing to be a service provider to us through such date. Notwithstanding the foregoing, the right of repurchase will expire in full with respect to all of the shares then subject to the right of repurchase upon the first to occur of a (i) Termination without Cause or by Mr. Step with Good Reason and (ii) a Change in Control Termination (each as defined in Mr. Step’s Executive Severance and Change in Control Agreement).
No underwriters were used in the foregoing transactions. The securities were issued in reliance on the exemptions from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 701 promulgated under Section 3(b) of the Securities Act as a transaction pursuant to a compensatory benefit plan or contract relating to compensation. Each purchaser received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration statement or an available exemption from registration. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.
(d)
Prepaid Forward Sale of Preferred Stock
On November 30, 2010, we concurrently entered into a Research and Development Agreement & License (“R&D Agreement”) and a Put and Call Option Agreement (“Put/Call”) with two commonly controlled entities, Kolu Pohaku Technologies, LLC (“KPT”) and Kolu Pohaku Management, LLC (“KPM”). The agreement was subsequently amended on, July 6, 2011, September 30, 2011, February 6, 2012 and November 4, 2013 to increase the funding received by us.
Upon agreement, we may, at any time after December 31, 2014, put 1,469,994 shares of our Series B preferred stock to KPM. KPM also has the option, at any time after December 31, 2014, to call this same number of shares of Series B preferred stock from us. The number of shares is determined by dividing the $1,750,000 of payments made by KPT to us under the R&D Agreement by the Series B original issue price of $1.19. Irrespective of whether the above exercise date has passed, the KPM Option automatically exercises immediately prior to any of the following events: (i) a qualified public offering by us, (ii) our liquidation or winding up, (iii) the licensure of our RP-G28 technology, or (iv) complete redemption or conversion of our outstanding Series B preferred stock. Exercise of the KPM Option under any scenario will result in full satisfaction of our obligation to make royalty payments to KPT under the R&D Agreement and KPT’s right, title and interest in the research conducted pursuant to the R&D Agreement will at such time become our property. In the event of a breach of the R&D Agreement by us, KPM and KPT’s sole remedy is to either exercise the KPM Option, even if before December 31, 2014, or institute an action for money damages in an amount not to exceed the payments under the R&D Agreement.
Item 16. Exhibits and Financial Statement Schedules
(a)
Exhibits
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b)
Financial Statement Schedules
Schedules have been omitted because the information required to be set forth therein is not required or is shown either in the financial statements or notes thereto.
Item 17. Undertakings
(a)
The undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(f)
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(h)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(i)
The undersigned registrant hereby undertakes that:
(1)
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2)
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, California, on the 23rd day of March, 2015.
RITTER PHARMACEUTICALS, INC.
By:
/s/ Michael D. Step
Name: Michael D. Step
Title: Chief Executive Officer
POWER OF ATTORNEY
We the undersigned officers and directors of Ritter Pharmaceutics, Inc., hereby severally constitute and appoint Michael D. Step, Andrew J. Ritter and Ira E. Ritter, and each of them singly, our true and lawful attorneys with full power to any of them, and to each of them singly, to sign for us and in our names in the capacities indicated below the registration statement on Form S-1 filed herewith and any and all pre-effective and post-effective amendments to said registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, and generally to do all such things in our name and behalf in our capacities as officers and directors to enable Ritter Pharmaceuticals, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated below on the 23rd day of March, 2015.
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Signature
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Title
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Date
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/s/ Michael D. Step
Michael D. Step
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Chief Executive Officer and Director
(Principal Executive Officer)
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March 23, 2015
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/s/ Samuel O. Lynn
Samuel O. Lynn
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Chief Financial Officer
(Principal Financial and Accounting Officer)
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March 23, 2015
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/s/ Ira E. Ritter
Ira E. Ritter
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Executive Chairman, Chief Strategic Officer and Director
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March 23, 2015
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/s/ Andrew J. Ritter
Andrew J. Ritter
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President and Director
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March 23, 2015
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/s/ Noah Doyle
Noah Doyle
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Director
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March 23, 2015
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/s/ Matthew W. Foehr
Matthew W. Foehr
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Director
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March 23, 2015
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EXHIBIT INDEX
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Exhibit No.
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Description
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1.1*
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Form of Underwriting Agreement
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3.1
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Restated Certificate of Incorporation of Ritter Pharmaceuticals, Inc.
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3.2
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Bylaws of Ritter Pharmaceuticals, Inc.
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3.3*
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Form of Amended and Restated Certificate of Incorporation of Ritter Pharmaceuticals, Inc.
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3.4*
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Form of Amended and Restated Bylaws of Ritter Pharmaceuticals, Inc.
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4.1*
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Form of Common Stock Certificate of Ritter Pharmaceuticals, Inc.
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4.2
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Amended and Restated Investors’ Rights Agreement, dated as of November 17, 2010, by and among Ritter Pharmaceuticals, Inc. and the persons and entities named therein
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4.3
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Amendment No. 1 to the Amended and Restated Investors’ Rights Agreement, dated as of January 13, 2011, by and among Ritter Pharmaceuticals, Inc. and the persons and entities named therein
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4.4
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Amendment No. 2 to the Amended and Restated Investors’ Rights Agreement, dated as of February 6, 2012, by and among Ritter Pharmaceuticals, Inc. and the persons and entities named therein
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4.5
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Amendment No. 3 to the Amended and Restated Investors’ Rights Agreement, dated as of December 4, 2014, by and among Ritter Pharmaceuticals, Inc. and the persons and entities named therein
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4.6*
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Form of Representative’s Warrant
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5.1*
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Opinion of Reed Smith LLP
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10.1
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Office Lease, dated June 25, 2013, by and between Douglas Emmett 1997, LLC and Ritter Pharmaceuticals, Inc.
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10.2
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Offer Letter, dated December 2, 2014, by and between Michael D. Step and Ritter Pharmaceuticals, Inc.
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10.3
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Executive Compensation Plan
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10.4
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Executive Severance & Change in Control Agreement, dated October 1, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
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10.5
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2008 Stock Plan
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10.6
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2009 Stock Plan
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10.7*
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Form of 2015 Stock Plan
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10.8
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
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10.9
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
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10.10
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Michael D. Step
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10.11
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Stock Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
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10.12
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
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10.13
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Andrew J. Ritter
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10.14
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Stock Option Agreement, dated September 25, 2013, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
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Exhibit No.
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Description
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10.15
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
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10.16
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Stock Option Agreement, dated December 2, 2014, by and between Ritter Pharmaceuticals, Inc. and Ira E. Ritter
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10.17
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Research and Development Agreement & License, dated November 30, 2010, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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10.18
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Amendment No. 1 to Research and Development Agreement & License, dated July 6, 2011, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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10.19
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Amendment No. 2 to Research and Development Agreement & License, dated September 30, 2011, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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10.20
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Amendment No. 3 to Research and Development Agreement & License, dated February 6, 2012, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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10.21
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Amendment No. 4 to Research and Development Agreement & License, dated November 4, 2013, by and among Kolu Pohaku Technologies, LLC, Kolu Pohaku Management, LLC and Ritter Pharmaceuticals, Inc.
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10.22
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Put and Call Option Agreement, dated November 30, 2010, by and between Kolu Pohaku Technologies, LLC and Ritter Pharmaceuticals, Inc.
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10.23
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Subordinated Convertible Promissory Note to SJ Investment Company, LLC, dated May 23, 2014, in the principal amount of $25,000.00
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10.24
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Subordinated Convertible Promissory Note to Javelin Venture Partners, L.P., dated May 23, 2014, in the principal amount of $350,000.00
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10.25
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Subordinated Convertible Promissory Note to Javelin Venture Partners, L.P., dated September 8, 2014, in the principal amount of $80,000.00
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10.26
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Unsecured Promissory Note to Javelin Venture Partners, L.P., dated October 9, 2014, in the principal amount of $70,000.00
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10.27
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Subordinated Convertible Promissory Note, dated October 20, 2014, in the principal amount of $80,000.00
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10.28
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Series C Preferred Stock and Warrant Purchase Agreement, dated December 4, 2014, by and among Ritter Pharmaceuticals, Inc. and the Investors named therein
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10.29*
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Form of Indemnification Agreement between Ritter Pharmaceuticals, Inc. and each of its directors and executive officers
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10.30*
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Clinical Supply and Operation Agreement, dated December 16, 2009, by and among Ritter Pharmaceuticals, Inc. and Ricerche Sperimentali Montale SpA and Inalco SpA
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10.31*
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Amendment 1 to the Clinical Supply and Cooperation Agreement, dated September 25, 2010, by and among Ritter Pharmaceuticals, Inc. and Ricerche Sperimentali Montale SpA and Inalco SpA
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21.1
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Subsidiaries of Registrant
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23.1
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Consent of Mayer Hoffman McCann P.C., independent registered public accounting firm
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23.2*
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Consent of Reed Smith LLP (included in Exhibit 5.1)
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24.1
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Power of Attorney (included on signature page)
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*
To be filed by amendment.
Exhibit 3.1
Delaware
The First State
I,
HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF "RITTER PHARMACEUTICALS, INC.", FILED IN THIS OFFICE ON THE TWELFTH DAY OF SEPTEMBER, A.D. 2008, AT 1:11 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE
HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS.
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4597004 8100
080949543
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Harriet Smith Windsor, Secretary of State
AUTHENTICATION: 6849461
DATE: 09-15-08
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You may
verify this certificate online
at
corp.delaware.gov/authver.shtml
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State
of Delaware
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Secretary
of State
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Division
of Corporations
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Delivered
01:32 PM 09/12/2008
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FILED
01:11 PM 09/12/2008
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SRV
080949543 - 4597004 FILE
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First
amended and restated
Certificate
of Incorporation of
Ritter
Pharmaceuticals, Inc.
The
undersigned, being the sole incorporator of the Corporation, hereby certifies that:
ARTICLE
I
The
name of the Corporation is Ritter Pharmaceuticals, Inc. The Corporation was first incorporated on September 8, 2008.
ARTICLE
II
The
purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE
III
The
address of the Corporation’s registered office in the State of Delaware is the Company Corporation, 2711 Centerville Road,
Suite 400, Wilmington, New Castle County, Delaware, 19808. The name of the registered agent at such address is The Company Corporation.
ARTICLE
IV
The
total number of shares of stock that the Corporation shall have authority to issue is 25,687,048, consisting of 15,000,000 shares
of Common Stock, $0.001 par value per share, and 10,687,048 shares of Preferred Stock, $0.001 par value per share. The first Series
of Preferred Stock shall be designated
“Series A-1 Preferred Stock”
and shall consist of 7,200,000 shares.
The second Series of Preferred Stock shall be designated
“Series A-2 Preferred Stock”
and shall consist of
1,687,500 shares. The third Series of Preferred Stock shall be designated
“Series A-3 Preferred Stock”
and
shall consist of 1,799,548 shares.
ARTICLE
V
The
terms and provisions of the Common Stock and Preferred Stock are as follows:
I.
Definitions
.
For purposes of this ARTICLE V, the following definitions shall apply:
(a)
“Conversion
Price”
shall mean $0.06944 per share for the Series A-1 Preferred Stock (subject to adjustment from time to time for
Recapitalizations and as otherwise set forth elsewhere herein), $0.40 per share for the Series A-2 Preferred Stock (subject to
adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein) and $0.61960 per share for the
Series A-3 Preferred Stock (subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere
herein).
(b)
“Convertible
Securities”
shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for
Common Stock.
(c)
“Corporation”
shall mean Ritter Pharmaceuticals, Inc.
(d)
“Distribution”
shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, other than
dividends on Common Stock payable in Common Stock, or the purchase or redemption of shares of the Corporation for cash or property
other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation
or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase,
(ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its
subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchase of capital
stock of the Corporation in connection with the settlement of disputes with any stockholder, (iv) any other repurchase or redemption
of capital stock of the Corporation approved by the holders of the Common and Preferred Stock of the Corporation voting as separate
classes.
(e)
“Dividend
Rate”
shall mean an annual rate of $0.00556 per share for the Series A-1 Preferred Stock (subject to adjustment from
time to time for Recapitalizations as set forth elsewhere herein), $0.032 per share for the Series A-2 Preferred Stock (subject
to adjustment from time to time for Recapitalizations as set forth elsewhere herein) and $0.04957 per share for the Series A-3
Preferred Stock (subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).
(f)
“Liquidation
Preference”
shall mean $0.06944 per share for the Series A-1 Preferred Stock (subject to adjustment from time to time
for Recapitalizations as set forth elsewhere herein), $0.40 per share for the Series A-2 Preferred Stock (subject to adjustment
from time to time for Recapitalizations as set forth elsewhere herein) and $0.61960 per share for the Series A-3 Preferred Stock
(subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein)..
(g)
“Options”
shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.
(h)
“Original
Issue Price”
shall mean $0.06944 per share for the Series A-1 Preferred Stock (subject to adjustment from time to time
for Recapitalizations as set forth elsewhere herein), $0.40 per share for the Series A-2 Preferred Stock (subject to adjustment
from time to time for Recapitalizations as set forth elsewhere herein) and $0.61960 per share for the Series A-3 Preferred Stock
(subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).
(i)
“Preferred
Stock”
shall mean the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and Series A-3 Preferred Stock.
(j)
“Recapitalization”
shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other
similar event.
2.
Dividends
.
(a)
Preferred
Stock
. In any calendar year, the holders of outstanding shares of Preferred Stock shall be entitled to receive
dividends, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, at
the Dividend Rate specified for such shares of Preferred Stock payable in preference and priority to any declaration or
payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with
respect to the Common Stock unless dividends on the Preferred Stock have been declared in accordance with the preferences
stated herein and all declared dividends on the Preferred Stock have been paid or set aside for payment to the Preferred
Stock holders. Payment of any dividends to the holders of the Preferred Stock shall be on a pro rata, pari passu basis in
proportion to the Dividend Rates for each series of Preferred Stock. The right to receive dividends on shares of Preferred
Stock shall not be cumulative, and no right to such dividends shall accrue to holders of Preferred Stock by reason of the
fact that dividends on said shares are not declared or paid in any calendar year.
(b)
Common
Stock
. Dividends may be paid on the Common Stock when, as and if declared by the Board of Directors, subject to the prior
dividend rights of the Preferred Stock and to Section 7 below.
(c)
Non-Cash
Distributions
. Whenever a Distribution provided for in this Section 2 shall be payable in property other than cash, the value
of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of
Directors.
(d)
Consent
to Certain Distributions
. As authorized by Section 402.5(c) of the California Corporations Code, if Section 502 or Section
503 of the California Corporations Code is applicable to a payment made by the Corporation, then such applicable section or sections
shall not apply if such payment is a payment made by the Corporation in connection with (i) repurchases of Common Stock issued
to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment
or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held
by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained
in agreements providing for such right, (iii) repurchases of Common Stock or Preferred Stock in connection with the settlement
of disputes with any stockholder, (iv) any other repurchase or redemption of Common Stock or Preferred Stock approved by the holders
of Preferred Stock of the Corporation.
3.
Liquidation
Rights
.
(a)
Liquidation
Preference
. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets
of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share
for
each share of Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Preferred
Stock and (ii) all declared but unpaid dividends (if any) on such share of Preferred Stock. If upon the liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Preferred
Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3(a), then the entire
assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders
of the Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section
3(a).
(b)
Remaining
Assets
. After the payment or setting aside for payment to the holders of Preferred Stock of the full preferential amounts
specified in Section 3(a) above, the entire remaining assets of the Corporation legally available for distribution shall be distributed
with equal priority and
pro rata
among the holders of the Preferred Stock and Common Stock of the Corporation in proportion
to the number of shares of Common Stock held by them, with the shares of Preferred Stock being treated for this purpose as if
they had been converted to shares of Common Stock at the then applicable Conversion Rate.
(c)
Shares
not Treated as Both Preferred Stock and Common Stock in any Distribution
. Shares of Preferred Stock shall not be entitled
to be converted into shares of Common Stock in order to participate in any Distribution, or series of Distributions, as
shares of Common Stock, without first foregoing participation in the Distribution, or series of Distributions, as shares of
Preferred Stock.
(d)
Reorganization
.
For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by,
or to include, (a) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions
to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation
but excluding any sale of stock for capital raising purposes) other than a transaction or series of transactions in which the
holders of the voting securities of the Corporation outstanding immediately prior to such transaction continue to retain (either
by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving
entity), as a result of shares in the Corporation held by such holders prior to such transaction, at least fifty percent (50%)
of the total voting power represented by the voting securities of the Corporation or such surviving entity outstanding immediately
after such transaction or series of transactions; (b) a sale, lease or other conveyance of all or substantially all of the assets
of the Corporation; or (c) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (each,
a
“Deemed Liquidation Event”
). The treatment of any transaction or series of related transactions as a liquidation,
dissolution or winding up pursuant to clause (a) or (b) of the preceding sentence may be waived by the consent or vote of a majority
of the outstanding Preferred Stock (voting as a single class and on an as-converted basis).
(e)
Valuation
of Non-Cash Consideration
. If any assets of the Corporation distributed to stockholders in connection with any liquidation,
dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value
as determined in good faith by the Board of Directors,
except
that
any publicly-traded securities to be
distributed
to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:
(i) If
the securities are then traded on a national securities exchange, then the value of the securities shall be deemed to be the average
of the closing prices of the securities on such exchange, over the ten (10) trading day period ending five (5) trading days prior
to the Distribution;
(ii) if
the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average of the
closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the Distribution.
In
the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the
date such transaction closes.
For
the purposes of this subsection 3(e),
“trading day”
shall mean any day which the exchange or system on which
the securities to be distributed are traded is open and
“closing prices”
or
“closing bid prices”
shall be deemed to be: (i) for securities traded primarily on the New York Stock Exchange, the American Stock Exchange or
Nasdaq, the last reported trade price or sale price, as the case may be, at 4:00 p.m., New York time, on that day and (ii) for
securities listed or traded on other exchanges, markets and systems, the market price as of the end of the regular hours trading
period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times
generally accepted in the securities industry for determining the market price of a stock as of a given trading day shall change
from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.
4.
Conversion
.
The holders of the Preferred Stock shall have conversion rights as follows (the
“Conversion Rights”
):
(a)
Right
to Convert
. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the
date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into that number
of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the relevant series by
the Conversion Price for such series. The number of shares of Common Stock into which each share of Preferred Stock of a series
may be converted is hereinafter referred to as the
“Conversion Rate”
for each such series. Upon any decrease
or increase in the Conversion Price for any series of Preferred Stock, as described in this Section 4, the Conversion Rate for
such series shall be appropriately increased or decreased.
(b)
Automatic
Conversion
. Each share of Preferred Stock shall automatically be converted into fully-paid, non-assessable shares of Common
Stock at the then effective Conversion Rate for such share (i) immediately prior to the closing of a firm commitment underwritten
initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the
“Securities Act”
), covering the offer and sale of the Corporation’s Common Stock, provided that the aggregate
gross proceeds to the Corporation are greater than $30,000,000.00 (a
“Qualified Public Offering”
), or (ii)
upon the receipt by the Corporation of a written request for
such
conversion from the holders of a majority of the Preferred Stock then outstanding, or, if later, the effective date for conversion
specified in such requests (each of the events referred to in (i) and (ii) are referred to herein as an
“Automatic Conversion
Event”
).
(c)
Mechanics
of Conversion
. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction
multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such
purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting
fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, and to receive certificates therefor, such holder shall either (A) surrender the
certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock or (B) notify the Corporation or its transfer agent that such certificates have been lost, stolen or
destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it
in connection with such certificates, and shall give written notice to the Corporation at such office that such holder elects
to convert the same;
provided
,
however
, that on the date of an Automatic Conversion Event, the outstanding
shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent;
provided
further
, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such Automatic Conversion Event unless either the certificates evidencing such shares of Preferred Stock are
delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer
agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of
an Automatic Conversion Event, each holder of record of shares of Preferred Stock shall be deemed to be the holder of record
of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares
of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall
not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares
of Common Stock shall not then be actually delivered to such holder.
The
Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver
at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid and a check payable to such holder in the amount of any cash amounts payable as the
result of a conversion into fractional shares of Common Stock, plus any declared and unpaid dividends on the converted Preferred
Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender
of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such
date;
provided
,
however
, that if the conversion is in connection with an underwritten offer of securities registered
pursuant to the Securities Act or a merger, sale, financing, or liquidation of the Corporation or other event, the conversion
may, at the option of any holder
tendering
Preferred Stock for conversion, be conditioned upon the closing of such transaction or upon the occurrence of such event, in which
case the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed
to have converted such Preferred Stock until immediately prior to the closing of such transaction or the occurrence of such event.
(d)
Adjustments
to Conversion Price for Diluting Issues
.
(i)
Special
Definition
. For purposes of this paragraph 4(d),
“Additional Shares of Common”
shall mean all shares of
Common Stock issued (or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the Corporation after the filing of this Amended
and Restated Certificate of Incorporation, other than issuances or deemed issuances of:
(1) shares
of Common Stock issued or issuable to officers, directors and
employees of, or consultants to, the Corporation pursuant
to
stock grants, option plans, purchase plans or other employee stock incentive programs or arrangements approved by the
Board of Directors, or upon exercise of options or warrants granted to such parties pursuant to any such plan or arrangement;
(2) shares
of Common Stock issued upon the exercise or conversion of Options or Convertible Securities outstanding as of the date of the
filing of this Amended and Restated Certificate of Incorporation;
(3) shares
of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment
is made pursuant to paragraph 4(e), 4(f) or 4(g) hereof;
(4) shares
of Common Stock issued in connection with a Qualified Public Offering;
(5) shares
of Common Stock issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of
substantially all of the assets or other reorganization or to a joint venture agreement, provided, that such issuances are approved
by the Board of Directors;
(6) shares
of Common Stock issued or issuable to banks, equipment lessors or other financial institutions pursuant to a debt financing or
commercial leasing transaction approved by the Board of Directors;
(7) shares
of Common Stock issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM,
marketing or other similar agreements or strategic partnerships approved by the Board of Directors;
(8) shares
of Common Stock issued or issuable to suppliers or third party service providers in connection with the provision of goods or
services pursuant to transactions approved by the Board of Directors; and
(9) shares
of Common Stock issued or issuable that are otherwise excluded by vote or written consent of holders of a majority of Preferred
Stock.
(ii)
No
Adjustment of Conversion Price
. No adjustment in the Conversion Price of a particular series of Preferred Stock shall be made
in respect of the issuance of Additional Shares of Common unless the consideration per share (as determined pursuant to paragraph
4(d)(v)) for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price
in effect on the date of, and immediately prior to such issue, for such series of Preferred Stock.
(iii)
Deemed
Issue of Additional Shares of Common
. In the event the Corporation at any time or from time to time after the date of the
filing of this Amended and Restated Certificate of Incorporation shall issue any Options or Convertible Securities or shall fix
a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in
the case of Convertible Securities, the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options and the conversion or exchange of the underlying securities, shall be deemed to have
been issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which shares are deemed to be issued:
(1) no
further adjustment in the Conversion Price of any series of Preferred Stock shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock in connection with the exercise of such Options or conversion or exchange of such Convertible
Securities;
(2) if
such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration
payable to the Corporation or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof
(other than a change pursuant to the anti-dilution provisions of such Options or Convertible Securities such as this Section 4(d)
or pursuant to Recapitalization provisions of such Options or Convertible Securities such as Sections 4(e), 4(f) and 4(g) hereof),
the Conversion Price of each series of Preferred Stock and any subsequent adjustments based thereon shall be recomputed to reflect
such change as if such change had been in effect as of the original issue thereof (or upon the occurrence of the record date with
respect thereto);
(3) no
readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price of a series of Preferred Stock
to an amount above the Conversion Price that would have resulted from any other issuances of Additional Shares of Common and any
other adjustments provided for herein between the original adjustment date and such readjustment date;
(4) upon
the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have
been exercised, the
Conversion
Price of each Series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:
(a) in
the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities
and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised
Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation
upon such conversion or exchange, and
(b) in
the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares
of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised
Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4(d)(v)) upon
the issue of the Convertible Securities with respect to which such Options were actually exercised; and
(5) if
such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close
of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this paragraph 4(d)(iii) as
of the actual date of their issuance.
(iv)
Adjustment of Conversion Price Upon Issuance of Additional Shares of Common
. In the event this Corporation shall
issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to paragraph 4(d)(iii))
without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred
Stock in effect on the date of and immediately prior to such issue, then, the Conversion Price of the affected series of
Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by
multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and the
denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common so issued. Notwithstanding the foregoing, the Conversion Price shall not be
reduced at such time if the amount
of such reduction would be less than $0.01, but any such amount shall be carried
forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction
which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate. For the
purposes of this Subsection 4(d)(iv), all shares of Common Stock issuable upon conversion of all outstanding shares of
Preferred Stock and
the
exercise and/or conversion of any other outstanding Convertible Securities and all outstanding Options shall be deemed to be outstanding.
(v)
Determination
of Consideration
. For purposes of this subsection 4(d), the consideration received by the Corporation for the issue (or deemed
issue) of any Additional Shares of Common shall be computed as follows:
(1)
Cash
and Property
. Such consideration shall:
(a) insofar
as it consists of cash, be computed at the aggregate amount of cash received by the Corporation before deducting any reasonable
discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection
with such issuance;
(b) insofar
as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
(c) in
the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and
(b) above, as reasonably determined in good faith by the Board of Directors.
(2)
Options
and Convertible Securities
. The consideration per share received by the Corporation for Additional Shares of Common deemed
to have been issued pursuant to paragraph 4(d)(iii) shall be determined by dividing:
(x) the
total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without
regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities
by
(y) the
maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(e)
Adjustments
for Subdivisions or Combinations of Common Stock
. In the event the outstanding shares of Common Stock shall be subdivided
(by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion
Price of each series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness
of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification
or otherwise) into a lesser number of shares of Common Stock, the Conversion Prices in effect immediately prior to such
combination
shall, concurrently with the effectiveness of such combination, be proportionately increased.
(f)
Adjustments
for Subdivisions or Combinations of Preferred Stock
. In the event the outstanding shares of Preferred Stock or a series of
Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares
of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock
in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be combined (by reclassification
or otherwise) into a lesser number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference
of the affected series of Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness
of such combination, be proportionately increased.
(g)
Adjustments
for Reclassification, Exchange and Substitution
. Subject to Section 3 above (
“Liquidation Rights”
), if
the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision
or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive each holder of such Preferred Stock shall have the right thereafter to convert
such shares of Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of
shares of Common Stock deliverable upon conversion of such series of Preferred Stock immediately before that change would have
been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with
respect to such other shares.
(h)
No
Impairment
. The Corporation will not through any reorganization, transfer of assets, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of Preferred Stock against impairment. Notwithstanding the foregoing, nothing in this Section 4(h) shall
prohibit the Corporation from amending its Certificate of Incorporation with the requisite consent of its stockholders and the
board of directors.
(i)
Certificate
as to Adjustments
. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Preferred Stock a
certificate setting forth such adjustment
or readjustment and
showing
in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock
and the
amount,
if any, of other property which at the time would be received upon the conversion of Preferred Stock.
(j)
Waiver
of Adjustment of Conversion Price
. Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion
Price of any series of Preferred Stock may be waived by the consent or vote of the holders of two-thirds (2/3) of the outstanding
shares of such series either before or after the issuance causing the adjustment. Any such waiver shall bind all future holders
of shares of such series of Preferred Stock.
(k)
Reservation
of Stock Issuable Upon Conversion
. The Corporation shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding
shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number
of shares as shall be sufficient for such purpose.
5.
Voting
.
(a)
Restricted
Class Voting
. Except as otherwise expressly provided herein or as required by law, the holders of Preferred Stock and the
holders of Common Stock shall vote together and not as separate classes.
(b)
No
Series Voting
. Other than as provided herein or required by law, there shall be no series voting.
(c)
Preferred
Stock
. Each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock
into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of
the Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote. Holders of Preferred
Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation. Fractional
votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Preferred Stock held by each holder could be converted), shall be disregarded.
(d)
Election
of Directors
. The Board of Directors shall consist of not less than four (4) members and such number shall be adjusted
by resolution of the Board of Directors. The holders of a majority of Series A-1 Preferred Stock, voting as a separate class,
shall be entitled to elect two members of the Corporation’s Board of Directors at each meeting or pursuant to the consent
of the Corporation’s stockholders for the election of directors. The holders of a majority of Series A-3 Preferred Stock,
voting as a separate class, shall be entitled to elect one member of the Corporation’s Board of Directors at each meeting
or pursuant to the consent of the Corporation’s stockholders for the election of directors. The remaining member(s) of the
Corporation’s Board of Directors shall be elected by the holders of Common Stock and Preferred Stock, voting together as
a single class, at
each
meeting or pursuant to each consent of the Corporation’s stockholders for the election of directors.
(e)
Adjustment
in Authorized Common Stock
. The number of authorized shares of Common Stock may be increased or decreased (but not below the
number of shares of Common Stock then outstanding) by an affirmative vote of the holders of a majority of the stock of the Corporation.
(f)
Common
Stock
. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held.
(g)
California
Section 2115
. So long as Section 2115 of the California General Corporation Law purports to make Section 708 subdivisions
(a), (b) and (c) of the California General Corporation Law applicable to the Corporation, the Corporation’s stockholders
shall have the right to cumulate their votes in connection with the election of directors as provided by Section 708 subdivisions
(a), (b) and (c) of the California General Corporation Law.
6.
Redemption
.
(a) At
any time after five years following the date of the initial issuance of the Series A-3 Preferred Stock, and at the election of
the holders of at least a majority of the then outstanding shares of Series A-3 Preferred Stock, this Corporation shall redeem,
out of funds legally available therefor, all (but not less than all) outstanding shares of Series A-3 Preferred Stock which have
not been converted into Common Stock pursuant to Section 4, in three (3) equal annual installments (each a
“Redemption
Date”
). The Corporation shall redeem the shares of Series A-3 Preferred Stock by paying in cash an amount per share
equal to the Original Issue Price for such Series A-3 Preferred Stock, plus an amount equal to all declared and unpaid dividends
thereon, whether or not earned (the
“Redemption Price”
). The number of shares of Series A-3 Preferred Stock
that the Corporation shall be required under this Section 6 to redeem on any one (1) Redemption Date shall be equal to the amount
determined by dividing: (a) the aggregate number of shares of Series A-3 Preferred Stock outstanding immediately prior to the
Redemption Date by; (b) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies).
If the funds legally available for redemption of the Series A-3 Preferred Stock shall be insufficient to permit the payment to
such holders of the full respective Redemption Prices, the Corporation shall effect such redemption
pro rata
among the
holders of the Series A-3 Preferred Stock so that each holder of Series A-3 Preferred Stock shall receive a redemption payment
equal to a fraction of the aggregate amount available for redemption, the numerator of which is the number of shares of Series
A-3 Preferred Stock held by such holder with each number multiplied by the Redemption Price of each share of Series A-3 Preferred
Stock held by such holder, and the denominator of which is the number of shares of Series A-3 Preferred Stock outstanding multiplied
by the Redemption Price of each such outstanding share of Series A-3 Preferred Stock.
(b) Any
redemption effected pursuant to Section 6(a) shall be made on a
pro rata
basis among the holders of the Series A-3 Preferred
Stock in proportion to the shares of Series A-3 Preferred Stock then held by them.
(c) At
least fifteen (15), but no more than thirty (30) days prior to each Redemption Date, written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice
is given) of the Preferred Stock to be redeemed, at the address last shown on the records of the Corporation for such holder,
notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption
Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation,
in the manner and at the place designated, the holder’s certificate or certificates representing the shares to be redeemed
(the
“Redemption Notice”
). Except as provided herein, on or after the Redemption Date each holder of Series
A-3 Preferred Stock to be redeemed shall surrender to this Corporation the certificate or certificates representing such shares,
in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered
certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(d) From
and after the applicable Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights
of the holders of shares of Series A-3 Preferred Stock designated for redemption in the Redemption Notice as holders of Series
A-3 Preferred Stock (except the right to receive the Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to the shares designated for redemption on such date, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Series A-3 Preferred Stock on any Redemption Date are insufficient to
redeem the total number of shares of Series A-3 Preferred Stock to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based
upon their holdings of Series A-3 Preferred Stock. The shares of Series A-3 Preferred Stock not redeemed shall remain outstanding
and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation
are legally available for the redemption of shares of Series A-3 Preferred Stock such funds will immediately be used to redeem
the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date, but which it has not redeemed.
(e) On
or prior to each Redemption Date, the Corporation may deposit the Redemption Price of all shares of Series A-3 Preferred Stock
designated for redemption in the Redemption Notice and not yet redeemed with a bank or trust corporation having aggregate capital
and surplus in excess of $100,000,000, as a trust fund for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed, with irrevocable instructions and authority to the
bank or trust corporation to pay the
Redemption Price
for such shares to their respective
holders on or after the Redemption Date upon receipt of notification
from the Corporation that such holder has surrendered a share certificate to the Corporation pursuant to Section 6(c). As of the
Redemption Date, the deposit shall constitute full payment of the shares to their holders, and from and after the Redemption Date
the shares so called for redemption shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof
shall cease to be stockholders with
respect
to such shares and shall have no rights with respect thereto except the right to receive from the bank or trust corporation payment
of the Redemption Price of the shares, without interest, upon surrender of their certificates therefore. Such instructions shall
also provide that any moneys deposited by the Corporation pursuant to this Section 6(e) for the redemption of shares thereafter
converted into shares of the Corporation's Common Stock pursuant to Section 4 prior to the Redemption Date shall be returned to
the Corporation forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section
6(e) remaining unclaimed at the expiration of two (2) years following the Redemption Date shall thereafter be returned to the
Corporation upon its request expressed in a resolution of its Board of Directors.
7.
Amendments
and Changes
. So long as at least twenty-five percent (25%) of the maximum number of originally issued shares of Preferred
Stock shall remain issued and outstanding, the Corporation shall not, without first obtaining the approval (by vote or written
consent as provided by law) of the holders of more than a majority of the outstanding shares of the Preferred Stock:
(a) amend,
alter or repeal any provision of the Certificate of Incorporation or bylaws of the Corporation if such action would materially
and adversely alter or change the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the
Preferred Stock or any series thereof;
provided
,
however
, that the creation of a new series of Preferred Stock
not senior to the Preferred Stock in rights of liquidation or dividends shall not be deemed adverse to the Preferred Stock; or
(b) authorize
or create (by reclassification, or otherwise) any new class or series of shares having rights, preferences or privileges with
respect to dividends or payments upon liquidation senior to or on parity with any series of Preferred Stock; or
(c) increase
the authorized number of shares of Preferred Stock; or
(d) except
as provided herein, pay a dividend on or repurchase any shares of its capital stock (excluding employee share repurchases upon
termination of employment); or
(e) undertake
any liquidation, dissolution or winding up of the Corporation or any Deemed Liquidation Event; or
(f) change
the size of the Board of Directors.
8.
Reissuance
of Preferred Stock
. In the event that any shares of Preferred Stock shall be converted pursuant to Section 4, redeemed pursuant
to Section 6 or otherwise repurchased by the Corporation, the shares so converted, redeemed or repurchased shall be cancelled
and shall not be issuable by this Corporation.
9.
Notices
.
Any notice required by the provisions of this ARTICLE V to be given to the holders of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing
on the books of the Corporation.
ARTICLE
VI
The
Corporation is to have perpetual existence.
ARTICLE
VII
The
name and mailing address of the incorporator are as follows:
Lee
D. Williams
1900
Avenue of the Stars, 25
th
Floor
Los Angeles, California 90067
ARTICLE
VIII
Elections
of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE
IX
Unless
otherwise set forth herein, the number of directors that constitute the Board of Directors of the Corporation shall be designated
in the Bylaws of the Corporation.
ARTICLE
X
In
furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized
to make, alter, amend or repeal the Bylaws of the Corporation.
ARTICLE
XI
1. To
the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director
of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating
or limited the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
2. The
Corporation shall have the power to indemnify, to the extent permitted by the Delaware General Corporation Law, as it presently
exists or may hereafter be amended from time to time, any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a
“Proceeding”
)
by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’
fees), judgments,
fines
and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.
3. Neither
any amendment nor repeal of this ARTICLE XI, nor the adoption of any provision of this Corporation’s Certificate of Incorporation
inconsistent with this ARTICLE XI, shall eliminate or reduce the effect of this ARTICLE XI, in respect of any matter occurring,
or any action or proceeding accruing or arising or that, but for this ARTICLE XI, would accrue or arise, prior to such amendment,
repeal or adoption of an inconsistent provision.
ARTICLE
XII
Meetings
of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside of the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
The
Corporation has not received any payment for any of its stock, no stock has been issued, and the sole incorporator of the Corporation
approved and adopted this First Amended and Restated Certificate of Incorporation pursuant to Sections 241 and 245 of the Delaware
General Corporation Law.
I,
the undersigned, as the incorporator of the Company, have signed this Certificate of Incorporation on September 11, 2008.
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/s/
Lee D. Williams
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|
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Lee D. Williams, Incorporator
|
Exhibit 3.2
Confidential Information
March 2014 Lee McCracken
BYLAWS OF
RITTER PHARMACEUTICALS,
INC.
Adopted September 10, 2008
TABLE OF CONTENTS
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Page
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ARTICLE I - MEETINGS OF STOCKHOLDERS
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1
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1.1
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Place of Meetings
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1
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1.2
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Annual Meeting
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1
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1.3
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Special Meeting
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1
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1.4
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Notice of Stockholders’ Meetings
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1
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1.5
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Quorum
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2
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1.6
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Adjourned Meeting; Notice
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2
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1.7
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Conduct of Business
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2
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1.8
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Voting
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2
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1.9
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Stockholder Action by Written Consent Without a Meeting
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3
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1.10
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Record Date for Stockholder Notice; Voting; Giving Consents
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4
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1.11
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Proxies
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5
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1.12
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List of Stockholders Entitled to Vote
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5
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ARTICLE II - DIRECTORS
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5
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2.1
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Powers
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5
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2.2
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Number of Directors
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5
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2.3
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Election, Qualification and Term of Office of Directors
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6
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2.4
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Resignation and Vacancies
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6
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2.5
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Place of Meetings; Meetings by Telephone
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7
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2.6
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Conduct of Business
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7
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2.7
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Regular Meetings
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7
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2.8
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Special Meetings; Notice
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7
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2.9
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Quorum; Voting
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8
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2.10
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Board Action by Written Consent Without a Meeting
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8
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2.11
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Fees and Compensation of Directors
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8
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2.12
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Removal of Directors
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8
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ARTICLE III – COMMITTEES
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8
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3.1
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Committees of Directors
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8
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3.2
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Committee Minutes
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9
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3.3
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Meetings and Actions of Committees
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9
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3.4
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Subcommittees
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10
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ARTICLE IV – OFFICERS
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10
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4.1
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Officers
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10
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4.2
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Appointment of Officers
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10
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4.3
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Subordinate Officers
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10
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4.4
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Removal and Resignation of Officers
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10
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4.5
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Vacancies in Offices
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10
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4.6
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Representation of Shares of Other Corporations
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10
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4.7
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Authority and Duties of Officers
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11
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ARTICLE V – INDEMNIFICATION
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11
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5.1
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Indemnification of Directors and Officers in Third Party Proceedings
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11
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5.2
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Indemnification of Directors and Officers in Actions by or in the Right of the Company
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11
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5.3
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Successful Defense
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11
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5.4
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Indemnification of Others
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12
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5.5
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Advanced Payment of Expenses
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12
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5.6
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Limitation on Indemnification
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12
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5.7
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Determination; Claim
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13
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5.8
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Non-Exclusivity of Rights
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13
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5.9
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Insurance
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13
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5.10
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Survival
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13
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5.11
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Effect of Repeal or Modification
|
13
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5.12
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Certain Definitions
|
13
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ARTICLE VI – STOCK
|
14
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6.1
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Stock Certificates; Partly Paid Shares
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14
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6.2
|
Special Designation on Certificates
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14
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6.3
|
Lost Certificates
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15
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6.4
|
Dividends
|
15
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6.5
|
Stock Transfer Agreements
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15
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6.6
|
Registered Stockholders
|
15
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6.7
|
Transfers
|
16
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ARTICLE VII - MANNER OF GIVING NOTICE AND WAIVER
|
16
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7.1
|
Notice of Stockholder Meetings
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16
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7.2
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Notice by Electronic Transmission
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16
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7.3
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Notice to Stockholders Sharing an Address
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17
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7.4
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Notice to Person with Whom Communication is Unlawful
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17
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7.5
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Waiver of Notice
|
17
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ARTICLE VIII - GENERAL MATTERS
|
18
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8.1
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Fiscal Year
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18
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8.2
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Seal
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18
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8.3
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Annual Report
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18
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8.4
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Construction; Definitions
|
18
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ARTICLE IX – AMENDMENTS
|
18
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BYLAWS
ARTICLE
I -
MEETINGS OF STOCKHOLDERS
1.1
Place
of Meetings
. Meetings of stockholders of Ritter Pharmaceuticals, Inc. (the “
Company
”) shall
be held at any place, within or outside the State of Delaware, determined by the Company’s board of directors (the “
Board
”). The
Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be
held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “
DGCL
”). In
the absence of any such designation or determination, stockholders’ meetings shall be held at the Company’s principal
executive office.
1.2
Annual
Meeting
. An annual meeting of stockholders shall be held for the election of directors at such date and time
as may be designated by resolution of the Board from time to time. Any other proper business may be transacted at the
annual meeting. The Company shall not be required to hold an annual meeting of stockholders,
provided
that (i)
the stockholders are permitted to act by written consent under the Company’s certificate of incorporation and these bylaws,
(ii) the stockholders take action by written consent to elect directors and (iii) the stockholders unanimously consent to such
action or, if such consent is less than unanimous, all of the directorships to which directors could be elected at an annual meeting
held at the effective time of such action are vacant and are filled by such action.
1.3
Special
Meeting
. A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board,
Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares
in the aggregate entitled to cast not less than 10% of the votes at that meeting.
If any person(s) other
than the Board calls a special meeting, the request shall:
(i)
be
in writing;
(ii)
specify
the time of such meeting and the general nature of the business proposed to be transacted; and
(iii)
be
delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive
Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.
The officer(s) receiving
the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with these
bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business
may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing
contained in this paragraph of this
Section 1.3
shall be construed as limiting, fixing, or affecting the time when a meeting
of stockholders called by action of the Board may be held.
1.4
Notice
of Stockholders’ Meetings
. Whenever stockholders are required or permitted to take any action at a meeting,
a written notice of the meeting shall be given which
shall state the place, if
any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed
to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written
notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting.
1.5
Quorum
. Except
as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in
person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all
outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. Where
a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series
or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect
to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.
If, however, such quorum
is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders
entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time
to time, in the manner provided in
Section 1.6
, until a quorum is present or represented.
1.6
Adjourned
Meeting; Notice
. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene
at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, and
the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and
vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting,
the Company may transact any business which might have been transacted at the original meeting. If the adjournment
is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the meeting.
1.7
Conduct
of Business
. Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in
his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive
Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President,
or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by
a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence
the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of any meeting
of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner
of voting and the conduct of business.
1.8
Voting
. The
stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of
Section
1.10
of these bylaws, subject to Section
217 (relating to voting rights
of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of
the DGCL.
Except as may be otherwise
provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled
to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting
at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors
of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by the holders
of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If
authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission
(as defined in
Section 7.2
of these bylaws),
provided
that any such electronic transmission must either set forth
or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder
or proxy holder.
Except as otherwise required
by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative
vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote
on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of
incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class
or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority
of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act
of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.
1.9
Stockholder
Action by Written Consent Without a Meeting
. Unless otherwise provided in the certificate of incorporation,
any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which
may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted.
An electronic transmission
(as defined in
Section 7.2
of these bylaws) consenting to an action to be taken and transmitted by a stockholder or proxy
holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and
dated for purposes of this section,
provided
that any such electronic transmission sets forth or is delivered with information
from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxy holder or
by a person or persons authorized to act for the stockholder or proxy holder and (ii) the date on which such stockholder or proxy
holder or authorized person or persons transmitted such electronic transmission.
In the event that the Board
shall have instructed the officers of the Company to solicit the vote or written consent of the stockholders of the Company, an
electronic transmission of a stockholder written consent given pursuant to such solicitation may be delivered to the Secretary
or the President of the Company or to a person designated by the Secretary or the President. The Secretary or the President
of the Company or a designee of the Secretary or the President shall cause any such written consent by electronic transmission
to be reproduced in paper form and inserted into the corporate records.
Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have
not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting
if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the
action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented
to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on
by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required
by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the
DGCL.
1.10
Record
Date for Stockholder Notice; Voting; Giving Consents
. In order that the Company may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board and which record date:
(i)
in
the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof,
shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting;
(ii)
in
the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not
be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board; and
(iii)
in
the case of determination of stockholders for any other action, shall not be more than 60 days prior to such other action.
If no record date is fixed
by the Board:
(i)
the
record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held;
(ii)
the
record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior
action of the Board is required by
law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance
with applicable law, or, if prior action by the Board is required by law, shall be at the close of business on the day on which
the Board adopts the resolution taking such prior action; and
(iii)
the
record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board
adopts the resolution relating thereto.
A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting,
provided
that the Board may fix a new record date for the adjourned meeting.
1.11
Proxies
. Each
stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without
a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing
or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall
be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability
of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.
1.12
List
of Stockholders Entitled to Vote
. The officer who has charge of the stock ledger of the Company shall prepare
and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the
name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic
contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane
to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network,
provided
that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary
business hours, at the Company’s principal place of business. In the event that the Company determines to make
the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available
only to stockholders of the Company. If the meeting is to be held at a place, then the list shall be produced and kept
at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If
the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any
stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to
access such list shall be provided with the notice of the meeting.
ARTICLE
II -
DIRECTORS
2.1
Powers
. The
business and affairs of the Company shall be managed by or under the direction of the Board, except as may be otherwise provided
in the DGCL or the certificate of incorporation.
2.2
Number
of Directors
. The Board shall consist of one or more members, each of whom shall be a natural person. Unless
the certificate of incorporation fixes the number of
directors, the number of
directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of
directors shall have the effect of removing any director before that director’s term of office expires.
2.3
Election,
Qualification and Term of Office of Directors
. Except as provided in
Section 2.4
of these bylaws, and
subject to Sections 1.2 and 1.9 of these bylaws, directors shall be elected at each annual meeting of stockholders. Directors
need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of
incorporation or these bylaws may prescribe other qualifications for directors. Each director shall hold office until
such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.
2.4
Resignation
and Vacancies
. Any director may resign at any time upon notice given in writing or by electronic transmission
to the Company. A resignation is effective when the resignation is delivered unless the resignation specifies a later
effective date or an effective date determined upon the happening of an event or events. A resignation which is conditioned
upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless
otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the Board, effective
at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.
Unless otherwise provided
in the certificate of incorporation or these bylaws:
(i)
Vacancies
and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders
having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum,
or by a sole remaining director.
(ii)
Whenever
the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of
the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by
a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director
so elected.
If at any time, by reason
of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or
an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate
of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the DGCL.
If, at the time of filling
any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board
(as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the voting stock at the time outstanding having the right to
vote for such directors,
summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen
by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as
far as applicable.
A director elected to fill
a vacancy shall be elected for the unexpired term of his or her predecessor in office and until such director’s successor
is elected and qualified, or until such director’s earlier death, resignation or removal.
2.5
Place
of Meetings; Meetings by Telephone
. The Board may hold meetings, both regular and special, either within or
outside the State of Delaware.
Unless otherwise restricted
by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate
in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which
all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in
person at the meeting.
2.6
Conduct
of Business
. Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his
or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by a chairperson designated
by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act
as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary
of the meeting.
2.7
Regular
Meetings
. Regular meetings of the Board may be held without notice at such time and at such place as shall
from time to time be determined by the Board.
2.8
Special
Meetings; Notice
. Special meetings of the Board for any purpose or purposes may be called at any time by the
Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.
Notice of the time and
place of special meetings shall be:
(i)
delivered
personally by hand, by courier or by telephone;
(ii)
sent
by United States first-class mail, postage prepaid;
(iii)
sent
by facsimile; or
(iv)
sent
by electronic mail,
directed to each director
at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on
the Company’s records.
If the notice is (i) delivered
personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered
or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail,
it shall be
deposited in the United States
mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The
notice need not specify the place of the meeting (if the meeting is to be held at the Company’s principal executive office)
nor the purpose of the meeting.
2.9
Quorum;
Voting
. At all meetings of the Board, a majority of the total authorized number of directors shall constitute
a quorum for the transaction of business. If a quorum is not present at any meeting of the Board, then the directors
present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum
is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.
The vote of a majority
of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise
specifically provided by statute, the certificate of incorporation or these bylaws.
If the certificate of incorporation
provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these
bylaws to a majority or other proportion of directors shall refer to a majority or other proportion of the votes of the directors.
2.10
Board
Action by Written Consent Without a Meeting
. Unless otherwise restricted by the certificate of incorporation
or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be
taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic
transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings
of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall
be in electronic form if the minutes are maintained in electronic form.
2.11
Fees
and Compensation of Directors
. Unless otherwise restricted by the certificate of incorporation or these bylaws,
the Board shall have the authority to fix the compensation of directors.
2.12
Removal
of Directors
. Unless otherwise restricted by statute, the ‘certificate of incorporation or these bylaws,
any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
No reduction of the authorized
number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.
ARTICLE
III -
COMMITTEES
3.1
Committees
of Directors
. The Board may designate one or more committees, each committee to consist of one or more of the
directors of the Company. The Board may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member
of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member
or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such
absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these
bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of
the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall
have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election
or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal
any bylaw of the Company.
3.2
Committee
Minutes
. Each committee shall keep regular minutes of its meetings and report the same to the Board when required.
3.3
Meetings
and Actions of Committees
. Meetings and actions of committees shall be governed by, and held and taken in accordance
with, the provisions of:
(i)
Section
2.5
(Place of Meetings; Meetings by Telephone);
(ii)
Section
2.7
(Regular Meetings);
(iii)
Section
2.8
(Special Meetings; Notice);
(iv)
Section
2.9
(Quorum; Voting);
(v)
Section
2.10
(Board Action by Written Consent Without a Meeting); and
(vi)
Section
7.5
(Waiver of Notice)
with such changes in the
context of those bylaws as are necessary to substitute the committee and its members for the Board and its members.
However
:
(vii)
the
time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;
(viii)
special
meetings of committees may also be called by resolution of the Board; and
(ix)
notice
of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings
of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions
of these bylaws.
Any provision in the certificate
of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply
to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.
3.4
Subcommittees
. Unless
otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board designating the committee,
a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate
to a subcommittee any or all of the powers and authority of the committee.
ARTICLE
IV -
OFFICERS
4.1
Officers
. The
officers of the Company shall be a President and a Secretary. The Company may also have, at the discretion of the Board,
a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more Vice Presidents, a Chief Financial
Officer, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries, and any such other officers as may
be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.
4.2
Appointment
of Officers
. The Board shall appoint the officers of the Company, except such officers as may be appointed
in accordance with the provisions of
Section 4.3
of these bylaws.
4.3
Subordinate
Officers
. The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive
Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each
of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in
these bylaws or as the Board may from time to time determine.
4.4
Removal
and Resignation of Officers
. Any officer may be removed, either with or without cause, by an affirmative vote
of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the Board.
Any officer may resign
at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation,
the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice
to the rights, if any, of the Company under any contract to which the officer is a party.
4.5
Vacancies
in Offices
. Any vacancy occurring in any office of the Company shall be filled by the Board or as provided
in
Section 4.3
.
4.6
Representation
of Shares of Other Corporations
. Unless otherwise directed by the Board, the President or any other person
authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident
to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted
herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney
duly executed by such person having the authority.
4.7
Authority
and Duties of Officers
. Except as otherwise provided in these bylaws, the officers of the Company shall have
such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent
not so provided, as generally pertain to their respective offices, subject to the control of the Board.
ARTICLE
V -
INDEMNIFICATION
5.1
Indemnification
of Directors and Officers in Third Party Proceedings
. Subject to the other provisions of this Article V, the
Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is
a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (a “
Proceeding
”) (other than an action by or in the right of the
Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer
of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The
termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere
or its equivalent,
shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that such person’s conduct was unlawful.
5.2
Indemnification
of Directors and Officers in Actions by or in the Right of the Company
. Subject to the other provisions of
this
Article V
, the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect,
any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by
or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director
or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including
attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action
or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best
interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
5.3
Successful
Defense
. To the extent that a present or former director or officer of the Company has been successful on the
merits or otherwise in defense of any action, suit or
proceeding described in
Section
5.1
or
Section 5.2
, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses
(including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
5.4
Indemnification
of Others
. Subject to the other provisions of this
Article V
, the Company shall have power to indemnify
its employees and agents to the extent not prohibited by the DGCL or other applicable law. The Board shall have the
power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.
5.5
Advanced
Payment of Expenses
. Expenses (including attorneys’ fees) incurred by an officer or director of the Company
in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of
a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf
of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under
this
Article V
or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and
officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Company deems appropriate. The
right to advancement of expenses shall not apply to any claim for which indemnity is excluded pursuant to these bylaws.
5.6
Limitation
on Indemnification
. Subject to the requirements in
Section 5.3
and the DGCL, the Company shall not be
obligated to indemnify any person pursuant to this
Article V
in connection with any Proceeding (or any part of any Proceeding):
(i)
for
which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote
or otherwise, except with respect to any excess beyond the amount paid;
(ii)
for
an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar
provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to
any settlement arrangements);
(iii)
for
any reimbursement of the Company by such person of any bonus or other incentive-based or equity-based compensation or of any profits
realized by such person from the sale of securities of the Company, as required in each case under the Securities Exchange Act
of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section
304 of the Sarbanes-Oxley Act of 2002 (the “
Sarbanes-Oxley Act
”), or the payment to the Company of profits arising
from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person
is held liable therefor (including pursuant to any settlement arrangements);
(iv)
initiated
by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the Company or its directors,
officers, employees, agents or other indemnitees, unless (a) the Board authorized the Proceeding (or the relevant part of the Proceeding)
prior to its initiation, (b) the Company provides the indemnification, in its
sole discretion, pursuant
to the powers vested in the Company under applicable law, (c) otherwise required to be made under
Section 5.7
or (d) otherwise
required by applicable law; or
(v)
if
prohibited by applicable law.
5.7
Determination;
Claim
. If a claim for indemnification or advancement of expenses under this
Article V
is not paid in
full within 90 days after receipt by the Company of the written request therefor, the claimant shall be entitled to an adjudication
by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The
Company shall indemnify such person against any and all expenses that are incurred by such person in connection with any action
for indemnification or advancement of expenses from the Company under this
Article V
, to the extent such person is successful
in such action, and to the extent not prohibited by law. In any such suit, the Company shall, to the fullest extent
not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement
of expenses.
5.8
Non-Exclusivity
of Rights
. The indemnification and advancement of expenses provided by, or granted pursuant to, this
Article
V
shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may
be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such
office. The Company is specifically authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by
the DGCL or other applicable law.
5.9
Insurance
. The
Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person’s status as such, whether or not the Company would have the power
to indemnify such person against such liability under the provisions of the DGCL.
5.10
Survival
. The
rights to indemnification and advancement of expenses conferred by this
Article V
shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators
of such a person.
5.11
Effect
of Repeal or Modification
. Any amendment, alteration or repeal of this
Article V
shall not adversely
affect any right or protection hereunder of any person in respect of any act or omission occurring prior to such amendment, alteration
or repeal.
5.12
Certain
Definitions
. For purposes of this
Article V
, references to the “
Company
” shall include,
in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a director, officer, employee or
agent of such constituent
corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this
Article V
with respect to the resulting or surviving corporation as such person would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article V
, references to “
other
enterprises
” shall include employee benefit plans; references to “
fines
” shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and references to “
serving at the request of the
Company
” shall include any service as a director, officer, employee or agent of the Company which imposes duties on,
or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “
not opposed to the
best interests of the Company
” as referred to in this
Article V
.
ARTICLE
VI -
STOCK
6.1
Stock
Certificates; Partly Paid Shares
. The shares of the Company shall be represented by certificates,
provided
that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall
be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate
is surrendered to the Company. Every holder of stock represented by certificates shall be entitled to have a certificate
signed by, or in the name of the Company by the Chairperson of the Board or Vice-Chairperson of the Board, or the President or
a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing
the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has
ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with
the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Company
shall not have power to issue a certificate in bearer form.
The Company may issue the
whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon
the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the
Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount
paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a
dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid
thereon.
6.2
Special
Designation on Certificates
. If the Company is authorized to issue more than one class of stock or more than
one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other
special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to
represent such class or series of stock;
provided
that, except as otherwise
provided in Section 202 of
the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company
shall issue to represent such class or series of stock, a statement that the Company will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within
a reasonable time after the issuance or transfer of uncertificated stock, the Company shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated on certificates pursuant to this
Section 6.2
or Sections 156, 202(a) or 218(a) of the DGCL or with respect to this
Section 6.2
a statement that the Company will furnish
without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional
or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences
and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated
stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
6.3
Lost
Certificates
. Except as provided in this
Section 6.3
, no new certificates for shares shall be issued
to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The
Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate,
or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate
or uncertificated shares.
6.4
Dividends
. The
Board, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends
upon the shares of the Company’s capital stock. Dividends may be paid in cash, in property, or in shares of the
Company’s capital stock, subject to the provisions of the certificate of incorporation.
The Board may set apart
out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any
such reserve.
6.5
Stock
Transfer Agreements
. The Company shall have power to enter into and perform any agreement with any number of
stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of
any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
6.6
Registered
Stockholders
. The Company:
(i)
shall
be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and
to vote as such owner;
(ii)
shall
be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and
(iii)
shall
not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether
or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
6.7
Transfers
. Transfers
of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney
duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of
shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer.
ARTICLE
VII -
MANNER OF GIVING NOTICE AND WAIVER
7.1
Notice
of Stockholder Meetings
. Notice of any meeting of stockholders, if mailed, is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the Company’s
records. An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or other agent
of the Company that the notice has been given shall, in the absence of fraud, be
prima facie
evidence of the facts stated
therein.
7.2
Notice
by Electronic Transmission
. Without limiting the manner by which notice otherwise may be given effectively
to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the
Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form
of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable
by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:
(i)
the
Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent;
and
(ii)
such
inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible
for the giving of notice.
However, the inadvertent
failure to treat such inability as a revocation shall not invalidate any meeting or other action.
Any notice given pursuant
to the preceding paragraph shall be deemed given:
(iii)
if
by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;
(iv)
if
by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;
(v)
if
by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later
of (A) such posting and (B) the giving of such separate notice; and
(vi)
if
by any other form of electronic transmission, when directed to the stockholder.
An affidavit of the Secretary
or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic
transmission shall, in the absence of fraud, be
prima facie
evidence of the facts stated therein.
An “
electronic
transmission
” means any form of communication, not directly involving the physical transmission of paper, that creates
a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form
by such a recipient through an automated process.
Notice by a form of electronic
transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.
7.3
Notice
to Stockholders Sharing an Address
. Except as otherwise prohibited under the DGCL, without limiting the manner
by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the
provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice
to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any
such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object
in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single
notice, shall be deemed to have consented to receiving such single written notice.
7.4
Notice
to Person with Whom Communication is Unlawful
. Whenever notice is required to be given, under the DGCL, the
certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or
permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any
such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In
the event that the action taken by the Company is such as to require the filing of a certificate under the DGCL, the certificate
shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except
such persons with whom communication is unlawful.
7.5
Waiver
of Notice
. Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation
or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person
entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent
to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders need be specified in any written waiver of notice
or any waiver by electronic
transmission unless so required by the certificate of incorporation or these bylaws.
ARTICLE
VIII -
GENERAL MATTERS
8.1
Fiscal
Year
. The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.
8.2
Seal
. The
Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The
Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
8.3
Annual
Report
. The Company shall cause an annual report to be sent to the stockholders of the Company to the extent
required by applicable law. If and so long as there are fewer than 100 holders of record of the Company’s shares,
the requirement of sending an annual report to the stockholders of the Company is expressly waived (to the extent permitted under
applicable law).
8.4
Construction;
Definitions
. Unless the context requires otherwise, the general provisions, rules of construction, and definitions
in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular
number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation
and a natural person.
ARTICLE
IX -
AMENDMENTS
These bylaws may be adopted,
amended or repealed by the stockholders entitled to vote. However, the Company may, in its certificate of incorporation,
confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred
upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.
A bylaw amendment adopted
by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or
repealed by the Board.
Exhibit 4.2
Confidential Information
RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
This Amended and Restated
Investors’ Rights Agreement (this “
Agreement
”), dated as of November 17, 2010, is made by and among Ritter
Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), and the persons and entities (each, an “
Investor
”
and collectively, the “
Investors
”) listed on
Exhibit A
hereto. Unless otherwise defined herein,
capitalized terms used in this Agreement have the meanings ascribed to them in
Section 1
. This Agreement amends
and restates in its entirety the Investor Rights Agreement entered into by and among the Company and the other parties thereto,
dated as of September 15, 2008 (the “
Prior Agreement
”).
RECITALS
WHEREAS
: Certain
of the Investors are parties to the Series B Preferred Stock Purchase Agreement of even date herewith, among the Company and the
Investors listed on the Schedule of Investors thereto (the “
Purchase Agreement
”), and it is a condition to the
closing of the sale of the Series B Preferred Stock to the Investors listed on such Schedule of Investors that such Investors and
the Company execute and deliver this Agreement.
WHEREAS
: In
order to induce the Investors to purchase the Series B Preferred Stock and invest funds in the Company pursuant to the Purchase
Agreement, the Company and the Investors that are party to the Prior Agreement hereby agree that this Agreement shall govern the
rights of the Investors with respect to the matters set forth herein.
NOW, THEREFORE
: In
consideration of the mutual promises and covenants set forth herein, and other consideration, the receipt and adequacy of which
is hereby acknowledged, the parties hereto agree as follows:
Section
1
Definitions
1.1
Certain
Definitions
. As used in this Agreement, the following terms shall have the meanings set forth below:
(a)
“
Commission
”
shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
(b)
“
Common
Stock
” means the Common Stock of the Company.
(c)
“
Conversion
Stock
” shall mean shares of Common Stock issued upon conversion of the Series A-1 Preferred Stock, Series A-2 Preferred
Stock, the Series A-3 Preferred Stock and the Series B Preferred Stock.
(d)
“
Exchange
Act
” shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules
and regulations thereunder, all as the same shall be in effect from time to time.
(e)
“
Holder
”
shall mean any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights
conferred by this Agreement have been duly and validly transferred in accordance with
Section 2.12
of this Agreement.
(f)
“
Indemnified
Party
” shall have the meaning set forth in
Section 2.6(c)
hereto.
(g)
“
Indemnifying
Party
” shall have the meaning set forth in
Section 2.6(c)
hereto.
(h)
“
Initial
Closing
” shall mean the date of the initial sale of shares of the Company’s Series B Preferred Stock pursuant to
the Purchase Agreement.
(i)
“
Initial
Public Offering
” shall mean the closing of the Company’s first firm commitment underwritten public offering of
the Company’s Common Stock registered under the Securities Act, provided that the aggregate gross proceeds to the Corporation
are greater than $30,000,000.00.
(j)
“
Initiating
Holders
” shall mean any Holder or Holders who in the aggregate hold not less than fifty percent (50%) of the outstanding
Registrable Securities.
(k)
“
Investors
”
shall mean the persons and entities listed on
Exhibit A
hereto.
(l)
“
New
Securities
” shall have the meaning set forth in
Section 4.1(a)
hereto.
(m)
“
Purchase
Agreement
” shall have the meaning set forth in the Recitals
(n)
“
Registrable
Securities
” shall mean (i) shares of Common Stock issued or issuable pursuant to the conversion of the Shares and (ii)
any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) above;
provided, however
, that Registrable Securities shall not include any shares of Common Stock described
in clause (i) or (ii) above which have previously been registered or which have been sold to the public either pursuant to a registration
statement or Rule 144, or which have been sold in a private transaction in which the transferor’s rights under this Agreement
are not validly assigned in accordance with this Agreement.
(o)
The
terms “
register
,” “
registered
” and “
registration
” shall refer to a registration
effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such registration statement.
(p)
“
Registration
Expenses
” shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company and one special counsel for all the Holders of Registrable Securities, blue sky fees and expenses, and expenses
of any regular or special audits incident to or required by any
such registration, but shall
not include Selling Expenses, fees and disbursements of other counsel for the Holders and the compensation of regular employees
of the Company, which employee compensation shall be paid in any event by the Company.
(q)
“
Restricted
Securities
” shall mean any Registrable Securities required to bear the first legend set forth in
Section 2.8(b)
hereof.
(r)
“
Rule
144
” shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by the Commission.
(s)
“
Rule
145
” shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by the Commission
(t)
“
Rule
415
” shall mean Rule 415 as promulgated by the Commission under the Securities Act, as such Rule may be amended from
time to time, or any similar successor rule that may be promulgated by the Commission,
(u)
“
Securities
Act
” shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(v)
“
Selling
Expenses
” shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale
of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of one special
counsel to the Holders included in Registration Expenses).
(w)
“
Series
A-1 Preferred Stock
” shall mean the shares of Series A-1 Preferred Stock issued pursuant to the Agreement and Plan of
Conversion to Corporation dated as of September 11, 2008.
(x)
“
Series
A-2 Preferred Stock
” shall mean the shares of Series A-2 Preferred Stock issued pursuant to the Agreement and Plan of
Conversion to Corporation dated as of September 11, 2008.
(y)
“
Series
A-3 Preferred Stock
” shall mean the shares of Series A-3 Preferred Stock issued pursuant to that certain Series A-3 Preferred
Stock Purchase Agreement dated as of September 15, 2008.
(z)
“
Shares
”
shall mean the Company’s Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred Stock and Series B
Preferred Stock.
(aa)
“
Significant
Holders
” shall have the meaning set forth in
Section 4.1
hereof.
(bb)
“
Series
B Preferred Stock
” shall mean the shares of Series B Preferred Stock issued pursuant to the Purchase Agreement.
Section
2
Registration Rights
2.1
Requested
Registration
.
(a)
Request
for Registration
. Subject to the conditions set forth in this
Section 2.1
, if the Company shall receive from
Initiating Holders a written request signed by such Initiating Holders that the Company effect any registration with respect to
all or a part of the Registrable Securities (such request shall state the number of shares of Registrable Securities to be disposed
of and the intended methods of disposition of such shares by such Initiating Holders), the Company will:
(i)
promptly
give written notice of the proposed registration to all other Holders; and
(ii)
as
soon as practicable, file and use its commercially reasonable efforts to effect such registration (including, without limitation,
filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate
compliance with the Securities Act) and to permit or facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request received by the Company within twenty (20) days after such written
notice from the Company is mailed or delivered.
(b)
Limitations
on Requested Registration
. The Company shall not be obligated to effect, or to take any action to effect, any such
registration pursuant to this
Section 2.1
:
(i)
If
such request is made prior to one hundred eighty (180) days following the effective date of the first registration statement filed
by the Company covering an underwritten offering of any of its securities to the general public (or the subsequent date on which
all market stand-off agreements applicable to the offering have terminated);
(ii)
If
the Initiating Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration
statement, propose to sell Registrable Securities with aggregate proceeds (after deduction for underwriter’s discounts and
expenses related to the issuance) less than $10,000,000;
(iii)
In
any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act;
(iv)
After
the Company has initiated two (2) such registrations pursuant to this
Section 2.1
;
(v)
During
the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and
ending on a date one hundred eighty
(180) days after the effective
date of, a Company-initiated registration (or ending on the subsequent date on which all market stand-off agreements applicable
to the offering have terminated);
provided
that the Company is actively employing in good faith commercially reasonable
efforts to cause such registration statement to become effective; or
(vi)
If
the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant
to a request made under
Section 2.3
hereof.
(c)
Deferral
. If
(i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable
Securities would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in
the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish
to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that
it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to
the limitations set forth in
Section 2.1(b)(v)
above) the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, and provided further, that
the Company shall not defer its obligation in this manner more than once in any twelve-month period.
(d)
Underwriting
. The
right of any Holder to include all or any portion of its Registrable Securities in a registration pursuant to this
Section 2.1
shall be conditioned upon such Holder’s participation in an underwriting and the inclusion of such Holder’s Registrable
Securities to the extent provided herein. If the Company shall request inclusion in any registration pursuant to
Section
2.1
of securities being sold for its own account, the Initiating Holders shall, on behalf of all Holders, offer to include
such securities in the underwriting and such offer shall be conditioned upon the participation of the Company or such other persons
in such underwriting and the inclusion of the Company’s and such person’s other securities of the Company and their
acceptance of the further applicable provisions of this
Section 2
(including
Section 2.10
). The Company
shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting
by the Company, which underwriters are reasonably acceptable to a majority in interest of the Initiating Holders.
Notwithstanding any other
provision of this
Section 2.1
, if the underwriters advise the Initiating Holders in writing that marketing factors require
a limitation on the number of shares to be underwritten, the number of Registrable Securities that may be so included shall be
allocated as follows: (i) first, among all Holders in such registration statement based on the pro rata percentage of
Registrable Securities held by such Holders, assuming conversion and (ii) second, to the Company, which the Company may allocate,
at its discretion, for its own account, or for the account of other holders or employees of the Company.
If a person who has requested
inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded
shall also be withdrawn from registration. Any Registrable Securities or other securities excluded or withdrawn from
such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and
if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to
this
Section 2.1(e)
, then the Company shall then offer to all Holders who have retained rights to include securities in
the registration the right to include additional Registrable Securities in the registration in an aggregate amount equal to the
number of shares so withdrawn, with such shares to be allocated among such Holders requesting additional inclusion, as set forth
above.
2.2
Company
Registration
.
(a)
Company
Registration
. If the Company shall determine to register any of its securities either for its own account or the
account of a security holder or holders, other than the first registration statement filed by the Company covering an underwritten
offering of any of its securities to the general public, a registration pursuant to
Section 2.1
or
2.3
, a registration
relating solely to employee benefit plans, a registration relating to the offer and sale of debt securities, a registration relating
to a corporate reorganization or other Rule 145 transaction, or a registration on any registration form that does not permit secondary
sales, the Company will:
(i)
promptly
give written notice of the proposed registration to all Holders; and
(ii)
use
its commercially reasonable efforts to include in such registration (and any related qualification under blue sky laws or other
compliance), except as set forth in
Section 2.2(b)
below, and in any underwriting involved therein, all of such Registrable
Securities as are specified in a written request or requests made by any Holder or Holders received by the Company within ten (10)
days after such written notice from the Company is mailed or delivered. Such written request may specify all or a part
of a Holder’s Registrable Securities.
(b)
Underwriting
. If
the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
Section 2.2(a)(i)
. In such event, the
right of any Holder to registration pursuant to this
Section 2.2
shall be conditioned upon such Holder’s participation
in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company
and the other holders of securities of the Company with registration rights to participate therein distributing their securities
through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or
underwriters selected by the Company.
Notwithstanding any other
provision of this
Section 2.2
, if the underwriters advise the Company in writing that marketing factors require a limitation
on the number of shares to be underwritten, the underwriters may (subject to the limitations set forth below) exclude all
Registrable Securities from,
or limit the number of Registrable Securities to be included in, the registration and underwriting;
provided
that, in no
event, shall such reduction reduce the value of the Registrable Securities of the Holders included in such registration below fifteen
percent (15%) of the total value of securities included in such registration, unless such offering is the Company’s Initial
Public Offering. The Company shall so advise all holders of securities requesting registration, and the number of shares
of securities that are entitled to be included in the registration and underwriting shall be allocated, as follows: (i)
first, to the Company for securities being sold for its own account and (ii) second, to the Holders requesting to include Registrable
Securities in such registration statement based on the pro rata percentage of Registrable Securities held by such Holders, assuming
conversion.
If a person who has requested
inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall also be
excluded therefrom by written notice from the Company or the underwriter. The Registrable Securities or other securities
so excluded shall also be withdrawn from such registration. Any Registrable Securities or other securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
(c)
Right
to Terminate Registration
. The Company shall have the right to terminate or withdraw any registration initiated
by it under this
Section 2.2
prior to the effectiveness of such registration whether or not any Holder has elected to include
securities in such registration.
2.3
Registration
on Form S-3
.
(a)
Request
for Form S-3 Registration
. After its Initial Public Offering, the Company shall use its commercially reasonable
efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has
qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this
Section
2 and
subject to the conditions set forth in this
Section 2.3
, if the Company shall receive from a Holder or Holders of Registrable
Securities a written request that the Company effect any registration on Form S-3 or any similar short form registration statement
with respect to all or part of the Registrable Securities (such request shall state the number of shares of Registrable Securities
to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), the Company will take all
such action with respect to such Registrable Securities as required by
Section 2.1(a)(i)
and
(ii)
.
(b)
Limitations
on Form S-3 Registration
. The Company shall not be obligated to effect, or take any action to effect, any such registration
pursuant to this
Section 2.3
:
(i)
In
the circumstances described in either
Sections 2.1(b)(i)
,
2.1(b)(iii)
or
2.1(b)(v)
;
(ii)
If
the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) on Form S-3 at an aggregate price to the public of less than
$1,000,000; or
(iii)
If,
in a given twelve-month period, the Company has effected two (2) such registration in such period.
(c)
Deferral
. If
(i) in the good faith judgment of the Board of Directors of the Company, the filing of a registration statement covering the Registrable
Securities would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in
the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish
to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that
it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then (in addition to
the limitations set forth in
Section 2.1(b)(v)
above) the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating Holders, and, provided further, that the Company
shall not defer its obligation in this manner more than once in any twelve-month period.
(d)
Underwriting
. If
the Holders of Registrable Securities requesting registration under this
Section 2.3
intend to distribute the Registrable
Securities covered by their request by means of an underwriting, the provisions of
Section 2.1(e)
shall apply to such registration. Notwithstanding
anything contained herein to the contrary, registrations effected pursuant to this
Section 2.3
shall not be counted as requests
for registration or registrations effected pursuant to
Section 2.1
.
2.4
Expenses
of Registration
. All Registration Expenses incurred in connection with registrations pursuant to
Sections 2.1
,
2.2
and
2.3
hereof shall be borne by the Company, including the reasonable fees and expenses, not to exceed $15,000,
of one special counsel to represent all stockholders participating in any such registration;
provided, however
, that the
Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to
Sections 2.1
and
2.3
if the registration request
is
subsequently withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered or because a sufficient number of Holders shall have withdrawn so that the minimum offering conditions
set forth in
Sections 2.1
and
2.3
are no longer satisfied (in which case all participating Holders shall bear such
expenses pro rata among each other based on the number of Registrable Securities requested to be so registered), unless the Holders
of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to
Section 2.1
.
2.5
Registration
Procedures
. In the case of each registration effected by the Company pursuant to
Section 2
, the Company will
keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its
expense, the Company will use its commercially reasonable efforts to:
(a)
Keep
such registration effective for a period of ending on the earlier of the date which is sixty (60) days from the effective date
of the registration statement or such time as the Holder or Holders have completed the distribution described in the registration
statement relating thereto.
(b)
Prepare
and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement for the period set forth in subsection (a) above;
(c)
Furnish
such number of prospectuses, including any preliminary prospectuses, and other documents incident thereto, including any amendment
of or supplement to the prospectus, as a Holder from time to time may reasonably request;
(d)
Use
its reasonable best efforts to register and qualify the securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdiction as shall be reasonably requested by the Holders;
provided
, that the Company shall
not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service
of process in any such states or jurisdictions.
(e)
Notify
each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances
then existing, and following such notification promptly prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus
as
may be necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete in light of the circumstances then existing;
(f)
Provide
a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective date of such registration;
(g)
Cause
all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h)
In
connection with any underwritten offering pursuant to a registration statement filed pursuant to
Section 2.1
hereof, enter
into an underwriting agreement in form reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting
agreement contains reasonable and customary provisions, and provided further, that each Holder participating in such underwriting
shall also enter into and perform its obligations under such an agreement.
2.6
Indemnification
.
(a)
To
the extent permitted by law, the Company will indemnify and hold harmless each Holder, each of its officers, directors and partners,
legal counsel, and accountants
and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance
has been effected pursuant to this
Section 2
, and each underwriter, if any, and each person who controls within the meaning
of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect thereof) arising out of or based on: (i) any untrue statement (or alleged untrue
statement) of a material fact contained or incorporated by reference in any prospectus, offering circular, or other document (including
any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance,
(ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (iii) any violation (or alleged violation) by the Company of the Securities Act, any state
securities laws or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the
Company in connection with any offering covered by such registration, qualification, or compliance, and the Company will reimburse
each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder,
each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred
in connection with investigating and defending or settling any such claim, loss, damage, liability, or action;
provided
that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or action arises
out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder,
any of such Holder’s officers, directors, partners, legal counsel or accountants, any person controlling such Holder, such
underwriter or any person who controls any such underwriter and stated to be specifically for use therein; and
provided, further
that, the indemnity agreement contained in this
Section 2.6(a)
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld).
(b)
To
the extent permitted by law, each Holder will, if Registrable Securities held by such Holder are included in the securities as
to which such registration, qualification, or compliance is being effected, indemnify and hold harmless the Company, each of its
directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company’s securities covered
by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of
the Securities Act, each other such Holder, and each of their officers, directors, and partners, and each person controlling each
other such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based
on: (i) any untrue statement (or alleged untrue statement) of a material fact contained or incorporated by reference
in any such registration statement, prospectus, offering circular, or other document, or (ii) any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters,
or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other
document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically
for use therein;
provided,
however
, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which
consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this
Section 2.6
exceed
the gross proceeds from the offering received by such Holder, except in the case of fraud or willful misconduct by such Holder.
(c)
Each
party entitled to indemnification under this
Section 2.6
(the “
Indemnified Party
”) shall give notice
to the party required to provide indemnification (the “
Indemnifying Party
”) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume
the defense of such claim or any litigation resulting therefrom;
provided
that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval
shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party’s expense; and
provided further
that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this
Section 2.6
, to the extent such failure is not prejudicial. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each
Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.
(d)
If
the indemnification provided for in this
Section 2.6
is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party,
in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties’ relative intent, knowledge, access to information,
and opportunity to correct or prevent such statement or omission. No person or entity will be required under this
Section
2.6
to contribute any amount in excess of the gross proceeds from the offering received by such person or entity, except in
the case of fraud or willful misconduct by such person or entity. No person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any person or entity who was
not guilty of such fraudulent misrepresentation.
(e)
Notwithstanding
the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered
into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
2.7
Information
by Holder
. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder
and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required
in connection with any registration, qualification, or compliance referred to in this
Section 2
.
2.8
Restrictions
on Transfer
.
(a)
The
holder of each certificate representing Registrable Securities by acceptance thereof agrees to comply in all respects with the
provisions of this
Section 2.8
. Each Holder agrees not to make any sale, assignment, transfer, pledge or other
disposition of all or any portion of the Restricted Securities, or any beneficial interest therein, unless and until (x) the transferee
thereof has agreed in writing for the benefit of the Company to take and hold such Restricted Securities subject to, and to be
bound by, the terms and conditions set forth in this Agreement, including, without limitation, this
Section 2.8
and
Section
2.10
and (y):
(i)
There
is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii)
Such
Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall
have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, and, if requested
by the Company, such Holder shall have furnished the Company, at its expense, with (i) an opinion of counsel, reasonably satisfactory
to the Company, to the effect that such disposition will not require registration of such Restricted Securities under the Securities
Act or (ii) a “no action” letter from the Commission to the effect that the transfer of such securities without registration
will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder
of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice
delivered by the Holder to the Company.
(b)
Each
certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped
or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable
state securities laws):
THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE
SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE
SECURITIES LAWS PURSUANT TO REGISTRATION OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES
WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
THE SHARES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC
OFFERING, AS SET FORTH IN AN INVESTORS’ RIGHTS AGREEMENT AMONG THE COMPANY AND THE ORIGINAL HOLDERS OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
The Holders consent to
the Company making a notation on its records and giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this
Section 2.8
.
(c)
The
first legend referring to federal and state securities laws identified in
Section 2.8(b)
hereof stamped on a certificate
evidencing the Restricted Securities and the stock transfer instructions and record notations with respect to such Restricted Securities
shall be removed and the Company shall issue a certificate without such legend to the holder of such Restricted Securities if (i)
such securities are registered under the Securities Act, or (ii) such holder provides the Company with an opinion of counsel reasonably
acceptable to the Company to the effect that a public sale or transfer of such securities may be made without registration under
the Securities Act, or (iii) such holder provides the Company with reasonable assurances, which may, at the option of the Company,
include an opinion of counsel satisfactory to the Company, that such securities can be sold pursuant to Rule 144 under the Securities
Act.
2.9
Rule
144 Reporting
. With a view to making available the benefits of certain rules and regulations of the Commission that
may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially
reasonable efforts to:
(a)
Make
and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b)
File
with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the
Exchange Act at any time after it has become subject to such reporting requirements; and
(c)
So
long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following
the
effective date of the first
registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act
and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration.
2.10
Market
Stand-Off Agreement
. Each Holder hereby agrees that such Holder shall not sell or otherwise transfer, make any short
sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as
a sale, of any Common Stock (or other securities) of the Company held by such Holder (other than those included in the registration)
during the one hundred eighty (180) day period following the effective date of a registration statement for the Company’s
Initial Public Offering filed under the Securities Act (or such other period as may be requested by the Company or an underwriter
to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations
and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any
successor provisions or amendments thereto), provided that: all executive officers and directors of the Company are
bound by and have entered into similar agreements. The obligations described in this
Section 2.10
shall not apply
to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in
the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The
Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 2.8(c)
hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such
one hundred eighty (180) day period. Each Holder agrees to execute a market standoff agreement with said underwriters
in customary form consistent with the provisions of this
Section 2.10
.
2.11
Delay
of Registration
. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration
as the result of any controversy that might arise with respect to the interpretation or implementation of this
Section 2
.
2.12
Transfer
or Assignment of Registration Rights
. The rights to cause the Company to register securities granted to a Holder
by the Company under this Section 2 may be transferred or assigned by a Holder only to (i) current and former limited or general
partners, members and other affiliates of the Holder or (ii) a transferee or assignee who acquires not less than 100,000 shares
of Registrable Securities (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like);
provided
that (1) such transfer or assignment of Registrable Securities is effected in accordance
with the terms of
Section 2.8
hereof, and applicable securities laws, (ii) the Company is given written notice prior to
said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect
to which such registration rights are intended to be transferred or assigned and (iii) the transferee or assignee of such rights
assumes in writing the obligations of such Holder under this Agreement, including without limitation the obligations set forth
in
Section 2.10
.
2.13
Limitations
on Subsequent Registration
Rights
. From and after the date of this Agreement, the Company shall not, without
the prior written consent of a majority in interest of the Holders, enter into any agreement with any holder or prospective holder
of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are senior
to the registration rights granted to the Holders hereunder.
2.14
Termination
of Registration Rights
. The right of any Holder to request registration or inclusion in any registration pursuant
to
Section 2.1
,
2.2
or
2.3
shall terminate on the earlier of (i) such date, on or after the closing of the
Company’s first registered public offering of Common Stock, on which all shares of Registrable Securities held or entitled
to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period, (ii) a Deemed
Liquidation Event (as defined in the Company’s Certificate of Incorporation), and (iii) four (4) years after the closing
of the Company’s Initial Public Offering.
Section
3
Information Covenants of the Company
The Company hereby covenants
and agrees, as follows:
3.1
Basic
Financial Information and Inspection Rights
.
(a)
Basic
Financial Information
. The Company will furnish the following reports to each Holder who owns at least 400,000 Shares
and/or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits, and the like) and is not deemed to be a competitor of the Company by the Board of Directors:
(i)
As
soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred eighty (180) days after
the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the
end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for
such year, prepared in accordance with U.S. generally accepted accounting principles consistently applied, certified by the Chief
Financial Officer of the Company, or if requested by the Series A-3 Director or the Series B Director, independent public accountants
of recognized national standing selected by the Company.
(ii)
As
soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company,
and in any event within forty-five (45) days after the end of the first, second, and third quarterly accounting periods in each
fiscal year of the Company, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end
of each such quarterly period, and unaudited consolidated statements of income and cash flows of the Company and its subsidiaries,
if any, for such period, prepared in accordance with U.S. generally accepted accounting principles consistently applied, subject
to changes resulting from normal year-end audit adjustments.
(iii)
As
soon as practicable, but in any event within forty-five (45) days after the end of each quarterly accounting period of the Company,
a summary capitalization table dated as of the end of such quarterly accounting period, prepared with reasonable detail.
(b)
Inspection
Rights
. The Company will afford to each Holder who owns at least 400,000 (as presently constituted and subject to
subject to subsequent adjustments for stock splits, stock dividends, reverse stock splits, and the like) Shares and/or Conversion
Stock and to such Holder’s accountants and counsel, reasonable access during normal business hours to all of the Company’s
respective properties, books and records. Each such Holder shall have such other access to management and information
as is necessary for it to comply with applicable laws and regulations and reporting obligations. The Company shall not
be required to disclose details of contracts with or work performed for specific customers and other business partners where to
do would violate confidentiality obligations to those parties. Holders may exercise their rights under this
Section
3.1(b)
only for purposes reasonably related to their interests under this Agreement and related agreements. The
rights granted pursuant to this
Section 3.1(b)
may not be assigned or otherwise conveyed by the Holders or by any subsequent
transferee of any such rights without the prior written consent of the Company except as authorized in this
Section 3.1(b)
.
3.2
Confidentiality
. Anything
in this Agreement to the contrary notwithstanding, no Holder by reason of this Agreement shall have access to any trade secrets
or classified information of the Company. The Company shall not be required to comply with any information rights of
Section 3
in respect of any Holder whom the Company reasonably determines to be a competitor or an officer, employee, director
or holder of more than ten percent (10%) of a competitor. Each Holder acknowledges that the information received by
them pursuant to this Agreement may be confidential and for its use only, and it will not use such confidential information in
violation of the Exchange Act or reproduce, disclose or disseminate such information to any other person (other than its employees
or agents having a need to know the contents of such information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information available to the public generally.
3.3
Disinterested
Board of Directors Approval
. The Company agrees that it will require the Board of Directors to obtain approval from
two-thirds (2/3) of the disinterested directors in connection with any (i) agreement or transaction with a member of the board
of directors or an affiliate of a member of the Board of Directors, (ii) compensation arrangement involving a member of the Board
of Directors or senior management, and (iii) a transaction resulting in a Change of Control. A member of the Board of
Directors will not be deemed to be an interested party in a transaction resulting in a Change of Control unless the member of the
Board of Directors is the person or entity with which such a transaction is conducted, or is an affiliate of that person or entity. The
Company further agrees that any such actions approved in violation of this covenant shall be void.
3.4
Termination
of Covenants
. The covenants set forth in this
Section 3
shall terminate and be of no further force and effect
after the closing of the Company’s Initial Public Offering.
3.5
Attendance
at Board Meetings
. The Company’s Board of Directors shall permit SJ Investment Company, LLC (“
SJ
”),
the right to designate one individual, who shall initially be Daniel Nathanson (the “
SJ Observer
”), to attend
all meetings of the Board of Directors, to participate in a non-voting observer capacity, to receive all notices of such meetings,
and to receive the information provided by the Company to the Board of Directors, in accordance with that certain Board Observer
Confidentiality Agreement by and between the Company and SJ’s designee.
Section
4
Right of First Refusal
4.1
Right
of First Refusal to Significant Holders
. The Company hereby grants to each Holder who owns at least 400,000 Shares
or Conversion Stock (as presently constituted and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits and the like) (the “
Significant Holders
”), the right of first refusal to purchase its pro rata
share of New Securities (as defined in this
Section 4.1(a)
) which the Company may, from time to time, propose to sell and
issue after the date of this Agreement. A Significant Holder’s pro rata share, for purposes of this right of first
refusal, is equal to the ratio of (a) the number of shares of Common Stock owned by such Significant Holder immediately prior to
the issuance of New Securities (assuming full conversion of the Shares) to (b) the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities (assuming full conversion of the Shares and exercise of all outstanding convertible
securities, rights, options and warrants, directly or indirectly, into Common Stock).
(a)
“
New
Securities
” shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized
or not, and rights, convertible securities, options or warrants to purchase such capital stock, and securities of any type whatsoever
that are, or may become, exercisable or convertible into capital stock;
provided
that the term “
New Securities
”
does not include:
(i)
the
Shares and the Conversion Stock;
(ii)
securities
issued or issuable to officers, employees, directors, consultants, placement agents, and other service providers of the Company
(or any subsidiary) pursuant to stock grants, option plans, purchase plans, agreements or other employee stock incentive programs
or arrangements approved by the Board of Directors of the Company;
(iii)
securities
issued pursuant to the conversion or exercise of any outstanding convertible or exercisable securities as of this date of this
Agreement;
(iv)
securities
issued or issuable as a dividend or distribution on Preferred Stock of the Company or pursuant to any event for which adjustment
is made pursuant to paragraph 4(e), 4(f) or 4(g) of Article V of the Certificate of Incorporation of the Company;
(v)
securities
offered pursuant to a bona fide, firmly underwritten public offering pursuant to a registration statement filed under the Securities
Act;
(vi)
securities
issued or issuable pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of
the assets or other reorganization or to a joint venture agreement,
provided
, that such issuances are approved by the Board
of Directors of the Company;
(vii)
securities
issued or issuable pursuant to a commercial leasing or secured debt financing transaction approved by the Board of Directors of
the Company;
(viii)
securities
issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other
similar agreements or strategic partnerships approved by the Board of Directors of the Company;
(ix)
securities
issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions
approved by the Board of Directors of the Company;
(x)
securities
of the Company which are otherwise excluded by the affirmative unanimous vote of the Board of Directors of the Company; and
(xi)
any
right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities
pursuant to subsections (i) through (x) above.
(b)
In
the event the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice
of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes
to issue the same. Each Significant Holder shall have ten (10) days after any such notice is mailed or delivered to
agree to purchase such Holder’s pro rata share of such New Securities for the price and upon the terms specified in the notice
by giving written notice to the Company, in substantially the form attached hereto as
Schedule 1
, and stating therein the
quantity of New Securities to be purchased.
(c)
In
the event the Holders fail to exercise fully the right of first refusal within said ten (10) day period (the “
Election
Period
”), the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) to
sell that portion of the New Securities with respect to which the Significant Holders’ right of first refusal option set
forth in this
Section 4.1
was not exercised, at a price and upon terms no more favorable to the purchasers thereof than
specified in the Company’s notice to Significant Holders delivered pursuant to
Section 4.1(b)
. In the event
the Company has not sold within such ninety (90) day period following the Election Period, or such ninety (90) day period following
the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such
securities to the Significant Holders in the manner provided in this
Section 4.1
.
(d)
The
right of first refusal granted under this Agreement shall expire upon, and shall not be applicable on the earlier of (i) the closing
of the Company’s Initial Public Offering, (ii) a Deemed Liquidation Event (as defined in the Company’s Certificate
of
Incorporation), and (iii)
a transfer of more than fifty percent (50%) of the Company’s voting power in a single transaction or series of related transactions.
Section
5
Voting Agreements
5.1
Election
of the Board of Directors
.
(a)
The
Company’s Certificate of Incorporation provides that (i) the holders of the majority of the Company’s Series A-1 Preferred,
voting as a single class, shall be entitled to elect two directors (the “
Series A-1 Directors
”), (ii) the holders
of the majority of the Company’s Series A-3 Preferred, voting as a single class, shall be entitled to elect one director
(the “
Series A-3 Director
”), (iii) the holders of the majority of the Company’s Series B Preferred, voting
as a single class, shall be entitled to elect one director (the “
Series B Director
”), and (iv) the holders of
the Company’s Preferred Stock and the holders of the Company’s Common Stock, voting together as one class, shall be
entitled to elect any remaining directors (the “
Joint Directors
”). Accordingly, during the term of
this Agreement, each Investor agrees to vote all Shares and shares of the Company’s Common Stock held by such Investor in
such manner as may be necessary to elect (and maintain in office) as members of the Company’s Board of Directors the following
individuals: (i) two Series A-1 Designees (as defined below) as the Series A-1 Directors, (ii) one Series A-3 Designee
(as defined below) as the Series A-3 Director, (iii) one Series B Designee (as defined below) as the Series B Director, (iv) one
Industry Designee (as defined below) as a Joint Director, and (v) one Joint Designee (as defined below) as a Joint Director.
(b)
The
current size of the Board of Directors is six (6) and can be changed by resolution of the Board of Directors. The designees
to the Company’s Board of Directors described above (each a “
Designee
”) shall be selected as follows:
(i)
the
two “
Series A-1 Designees
” shall be chosen by a majority-in-interest of the holders of outstanding shares of
the Company’s Series A-1 Preferred and shall initially be Andrew Ritter and Ira Ritter,
(ii)
the
one “
Series A-3 Designee
” shall be nominated by Javelin Venture Partners, or an affiliate thereof (“Javelin”),
and chosen by a majority-in-interest of the holders of outstanding shares of the Company’s Series A-3 Preferred and shall
initially be Noah Doyle,
(iii)
the
one “
Series B Designee
” shall be chosen by a majority-in-interest of the holders of outstanding shares of the
Company’s Series B Preferred.
(iv)
the
one “
Industry Designee
” shall be an individual with relevant industry experience, nominated by a majority-in-interest
of the holders of outstanding shares of Series A-1 Preferred Stock, approved by a majority of the Board of Directors, and chosen
by a majority-in-interest of the holders of Preferred Stock and Common Stock, voting together as a single class and
(v)
the
one “
Joint Designee
” shall be chosen by a majority-in-interest of the holders of Preferred Stock and Common
Stock, voting together as a single class, and shall initially be Steven Markowitz.
Such approval shall take
the form of a notice signed by a majority-in-interest of the holders of Shares and the holders of Common Stock;
provided however
,
that if no such notice has been delivered to the Secretary of the Company within ten days prior to any regular or special meeting
of stockholders or five days after receiving an Action by Written Consent, the Secretary of the Company shall deliver a ballot
to each holder of Shares and each holder of Common Stock. Such ballot shall contain the nominee or nominees of any holder
of Shares or any holder of Common Stock, the names of which were delivered to the Secretary prior to the mailing of the ballot,
and shall contain instructions that each holder of Shares and each holder of Common Stock is to complete and return such ballot
to the Secretary of the Company within five days of the effective date of such notice.
(c)
Changes
in Designees
. From time to time during the term of this Agreement, Investors who hold sufficient Shares to select
a Designee pursuant to this Agreement may, in their sole discretion: (i) notify the Company in writing of an intention
to remove from the Company’s Board of Directors any incumbent Designee who occupies a Board seat for which such Investors
are entitled to designate the Designee; or (ii) notify the Company in writing of an intention to select a new Designee for election
to a Board seat for which such Voting Parties are entitled to designate the Designee (whether to replace a prior Designee or to
fill a vacancy in such Board seat). In the event of such an initiation of a removal or selection of a Designee under
this section, the Company shall take such reasonable actions as are necessary to facilitate such removals or elections, including,
without limitation, soliciting the votes of the appropriate stockholders, and the Investors shall vote their Shares to cause: (i)
the removal from the Company’s Board of Directors of the Designee or Designees so designated for removal; and (ii) the election
to the Company’s Board Directors of any new Designee or Designees so designated.
Section
6
Miscellaneous
6.1
Amendment
. Except
as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other
than by a written instrument referencing this Agreement and signed by the Company and the Holders holding a majority of the Registrable
Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144);
provided, however
,
that Holders purchasing shares of Series B Preferred Stock in a Closing after the Initial Closing (each as defined in the Purchase
Agreement) may become parties to this Agreement, by executing a counterpart of this Agreement without any amendment of this Agreement
pursuant to this paragraph or any consent or approval of any other Holder. Any such amendment, waiver, discharge or
termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such securities
of Holder. Each Holder acknowledges that by the operation of this paragraph, the holders of a majority of the Registrable
Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144) will have the right and power
to diminish or eliminate all rights of such Holder under this Agreement.
6.2
Notices
. All
notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, sent by facsimile or electronic mail or otherwise delivered by hand or by messenger addressed:
(a)
if
to an Investor, at the Investor’s address, facsimile number or electronic mail address as shown in the Company’s records,
as may be updated in accordance with the provisions hereof;
(b)
if
to any Holder, at such address, facsimile number or electronic mail address as shown in the Company’s records, or, until
any such holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address
of the last holder of such shares for which the Company has contact information in its records; or
(c)
if
to the Company, one copy should be sent to Ritter Pharmaceuticals, Inc., 1880 Century Park East, No. 1100, Los Angeles, California
90067, Attn: President, or at such other address as the Company shall have furnished to the Investors, with a copy,
which shall not constitute notice, to Quarles & Brady LLP, Two North Central Avenue, Phoenix, Arizona 85004, Attn: Geoffrey
M. Ossias.
Each such notice or other
communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered
personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation
of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the electronic mail address
set forth on the Schedule of Investors.
6.3
Governing
Law
. This Agreement shall be governed in all respects by the internal laws of the State of Delaware as applied to
agreements entered into among Delaware residents to be performed entirely within Delaware, without regard to principles of conflicts
of law.
6.4
Successors
and Assigns
. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred,
delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor
without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement
shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
6.5
Entire
Agreement
. This Agreement and the exhibits hereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof. No party hereto shall be liable or bound to any other party in any manner
with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth
herein.
6.6
Delays
or Omissions
. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing
to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right,
power or remedy
of such non-defaulting party,
nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach
or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the
part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions
of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not
alternative.
6.7
Severability
. If
any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void,
portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Agreement, and
such court will replace such illegal, void or unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, void or unenforceable
provision. The balance of this Agreement shall be enforceable in accordance with its terms.
6.8
Titles
and Subtitles
. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered
in construing or interpreting this Agreement. All references in this Agreement to sections, paragraphs and exhibits
shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
6.9
Counterparts
. This
Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such
counterparts, and all of which together shall constitute one instrument.
6.10
Telecopy
Execution and Delivery
. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or
more parties hereto and delivered by such party by facsimile or any similar electronic transmission device pursuant to which the
signature of or on behalf of such party can be seen. Such execution and delivery shall be considered valid, binding
and effective for all purposes. At the request of any party hereto, all parties hereto agree to execute and deliver
an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof.
6.11
Jurisdiction;
Venue
. With respect to any disputes arising out of or related to this Agreement, the parties consent to the exclusive
jurisdiction of, and venue in, the state courts in Santa Clara County in the State of California (or in the event of exclusive
federal jurisdiction, the courts of the Northern District of California).
6.12
Further
Assurances
. Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability
company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things
as may be necessary to more fully effectuate this Agreement.
6.13
Termination
Upon Change of Control
. Notwithstanding anything to the contrary herein, this Agreement (excluding any then-existing
obligations) shall terminate upon (a) the
acquisition of the Company
by another entity by means of any transaction or series of related transactions to which the Company is party (including, without
limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising
purposes) other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding
immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting
securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders
prior to such transaction, at least fifty percent (50%) of the total voting power represented by the voting securities of the Corporation
or such surviving entity outstanding immediately after such transaction or series of transactions; or (b) a sale, lease or other
conveyance of all substantially all of the assets of the Company (together, a “
Change of Control
”).
6.14
Conflict
. In
the event of any conflict between the terms of this Agreement and the Company’s Certificate of Incorporation or its Bylaws,
the terms of the Company’s Certificate of Incorporation or its Bylaws, as the case may be, will control.
6.15
Attorneys’
Fees
. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing
party in such dispute shall be entitled to recover from the losing party such reasonable out-of-pocket fees and expenses of attorneys
and accountants, incurred in connection with any such suit or action instituted to enforce the provisions of this Agreement.
[Remainder of Page Intentionally
Left Blank]
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
COMPANY
”
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|
|
|
|
RITTER PHARMACEUTICALS, INC.
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|
|
a Delaware corporation
|
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|
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|
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By:
|
/s/ Andrew J. Ritter
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|
Andrew J. Ritter, President & CEO
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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STEVEN M. MARKOWITZ 1999 TRUST
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By:
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/s/ Steven M. Markowitz
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Steven M. Markowitz, Trustee
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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|
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JAVELIN VENTURE PARTNERS, LP
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By:
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/s/ Noah Doyle
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Noah Doyle, Managing Director
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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SJ INVESTMENT COMPANY, LLC
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By:
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/s/ Dan Nathanson
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Dan Nathanson, Managing Director
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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WS INVESTMENT COMPANY, LLC
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By:
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/s/ James Terranova
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James Terranova, Director
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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VIVA LAS VEGAS, LLC
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By:
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/s/ Jon Price
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Jon Price, Managing Director
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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By:
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/s/ Tod Richard Spieker
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Tod Richard Spieker
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By:
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/s/ Catherine R. Spieker
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Catherine R. Spieker
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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By:
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/s/ David Stewart
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David Stewart
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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By:
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/s/ Roger Markowitz
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Roger Markowitz
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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By:
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/s/ Beverly Markowitz
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Beverly Markowitz
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
IN WITNESS WHEREOF, the
parties hereto have executed this Amended and Restated Investors’ Rights Agreement effective as of the day and year first
above written.
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“
INVESTORS
”
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By:
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/s/ Jerry Offsay
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Jerry Offsay
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RITTER PHARMACEUTICALS,
INC.
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
EXHIBIT A
INVESTORS
Series A-1 Preferred
Stock
Stonehenge Partners, LLC
Jeremy Milken
Series A-2 Preferred
Stock
Elan Capital, LLC
James H. Simons
Noah Doyle
William A. Davis
Viva Las Vegas, LLC
Stonehenge Partners, LLC
Steven M. Markowitz 1999
Trust*
Beverly Markowitz*
Roger Markowitz*
Derek Yee*
Series A-3 Preferred
Stock
Javelin Venture Partners,
LP**
Jerry Offsay
Series B Preferred
Stock
Javelin Venture Partners,
LP
SJ Investment Company, LLC
WS Investment Company
Steven M. Markowitz 1999
Trust
Viva Las Vegas, LLC
Tod Richard and Catherine
R. Spieker
David Stewart
Roger Markowitz
* Received Shares upon transfer
by Stockton RNS Investors, LLC.
** Formerly Step5 Venture
Partners.
SCHEDULE 1
NOTICE AND WAIVER/ELECTION
OF
RIGHT OF FIRST REFUSAL
I do hereby waive or
exercise, as indicated below, my rights of first refusal under the Amended and Restated Investors’ Rights Agreement dated
as of November , 2010 (the “Agreement”):
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1.
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Waiver of 10 Days’ Notice Period in Which to Exercise
Right of First Offer:
(please check only one)
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( )
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WAIVE in full, on behalf of all Holders, the 10-day notice
period provided to exercise my right of first refusal granted under the Agreement.
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( )
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DO NOT WAIVE the notice period described above.
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2.
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Issuance and Sale of New Securities:
(please
check only one)
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( )
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WAIVE in full the right of first refusal granted under
the Agreement with respect to the issuance of the New Securities.
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( )
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ELECT TO PARTICIPATE in $__________ [PLEASE PROVIDE AMOUNT]
in New Securities proposed to be issued by Ritter Pharmaceuticals, Inc. representing less than my pro rata portion of the aggregate
of $__________ in New Securities being offered in the financing.
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( )
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ELECT TO PARTICIPATE in $__________ in New Securities proposed
to be issued by Ritter Pharmaceuticals, Inc., representing my full pro rata portion of the aggregate of $__________ in New Securities
being offered in the financing.
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( )
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ELECT TO PARTICIPATE in my full pro rata portion of the
aggregate of $__________ in New Securities being made available in the financing and, to the extent made available in the sole
discretion of Ritter Pharmaceuticals, Inc., up to an additional $__________ [PLEASE PROVIDE AMOUNT] in New Securities being offered
in the financing.
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Date: _______________,
20__
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Signature of Stockholder or
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Authorized Signatory
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Title, if applicable
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Exhibit 4.3
RITTER PHARMACEUTICALS, INC.
AMENDMENT NO. 1 TO
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
This Amendment No. 1 (the
“
Amendment
”) to the Amended and Restated Investors’ Rights Agreement dated as of November 17, 2010 (the
“
Original Agreement
”), is made and entered into as of January 13, 2011, pursuant to Section 6.1 of the Original
Agreement by and among Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), and the investors
listed on Exhibit A thereto (the “
Investors
”) holding a majority of the Company’s Registrable Securities
(as defined in the Original Agreement). Capitalized terms used in this Amendment that are not otherwise defined herein shall have
the respective meanings assigned to them in the Original Agreement.
RECITALS
WHEREAS
, the Company
is a party to that certain Research and Development Agreement & License and that certain Put and Call Option Agreement, each
dated as of November 17, 2010 (together, the “
R&D Agreement
”), pursuant to which the Company must provide
Kolu Pohaku Management, LLC (“
KPM
”), with the right to designate one of the Company’s “Series B
Designees” (as defined in the IRA) upon “Disbursements” (as defined in the R&D Agreement) to the Company
of at least $750,000;
WHEREAS
, the Company
anticipates that it shall receive the requisite Disbursements in January 2011;
WHEREAS
, the Board
of Directors of the Company (the “
Board
”) has determined that it would be in the best interests of the Company
and its stockholders to amend the IRA in the manner set forth below; and
WHEREAS
, the undersigned
represent the Company and stockholders holding at least a majority of the outstanding Registrable Securities of the Company as
of the date hereof;
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
Effective immediately upon the Company’s receipt of at least $750,000 in Disbursements pursuant to the R&D
Agreement, Section 541(b)(iii) of the Original Agreement shall be amended and restated to read as follows:
“(iii) the
one
“
Series B Designee
” shall be nominated by Kolu Pohaku Management, LLC, or an affiliate thereof (“
KPM
”),
and chosen by a majority-in-interest of the holders of outstanding shares of the Company’s Series B Preferred.”
2.
Except as expressly set forth in this Amendment, the Original Agreement shall continue
in full force and effect in accordance with its terms.
3.
This Amendment may be executed in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same instrument.
4.
All corporate action on the part of the Company and its directors, officers, and stockholders
necessary for the authorization, execution, and delivery of this Amendment by the Company has been taken as of the date hereof.
5.
This Amendment shall be governed by and construed and enforced in accordance with the
laws of the state of California, without reference to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
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“
COMPANY
”
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew Ritter
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Andrew Ritter, Chief Executive Officer
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Signature Page to Amendment No. 1 to
Amended and Restated Investors’
Rights Agreement
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“
INVESTORS
”
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STONEHENGE PARTNERS, LLC
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By:
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/s/ Ira Ritter
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Ira Ritter, its Managing Member
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Signature Page to Amendment No. 1 to
Amended and Restated Investors’
Rights Agreement
Exhibit 4.4
RITTER PHARMACEUTICALS, INC.
AMENDMENT NO. 2 TO
AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT
This Amendment No. 2 (the
“
Amendment
”) to the Amended and Restated Investors’ Rights Agreement dated as of November 17, 2010, and
first amended on January 13, 2011 (the “
Original Agreement
”), is made and entered into as of February 6, 2012,
pursuant to Section 6.1 of the Original Agreement by and among Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”),
and the investors listed on Exhibit A thereto (the “
Investors
”) holding a majority of the Company’s Registrable
Securities (as defined in the Original Agreement). Capitalized terms used in this Amendment that are not otherwise defined herein
shall have the respective meanings assigned to them in the Original Agreement.
RECITALS
WHEREAS
, the Company
is a party to that certain Note Purchase Agreement (the “
NPA
”), pursuant to which the Company has agreed to
provide certain participation rights to the holders of such promissory notes as may be issued thereunder, in the manner set forth
therein;
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
The
second sentence of Section 4 of the Original Agreement shall be amended and restated to read as follows:
“A Significant
Holder’s pro rata share, for purposes of this right of first refusal, is equal to the ratio of (a) the number of shares of
Common Stock owned by such Significant Holder immediately prior to the issuance of New Securities (assuming full conversion of
the Shares) plus, with respect to outstanding convertible promissory notes that provide for a right of first refusal in accordance
with the terms of such notes (the “Convertible Notes”, the number of shares of capital stock equal to the principal
amount outstanding plus accrued but unpaid interest of all Convertible Notes held by such Significant Holder on such date divided
by the lowest applicable conversion price as determined pursuant to the terms of such Convertible Note, to (b) the total number
of shares of Common Stock outstanding immediately prior to the issuance of New Securities (assuming full conversion of the Shares
and exercise of all outstanding convertible securities, rights, options and warrants, directly or indirectly, into Common Stock,
including, without limitation, any outstanding convertible promissory notes that provide for a right of first refusal in accordance
with the terms of such notes).”
2.
Except
as expressly set forth in this Amendment, the Original Agreement shall continue in full force and effect in accordance with its
terms.
3.
This
Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
4.
All
corporate action on the part of the Company and its directors, officer; and stockholders necessary for the authorization, execution,
and delivery of this Amendment by the Company has been taken as of the date hereof.
5.
This
Amendment shall be governed by and construed and enforced in accordance with the laws of the state of California, without reference
to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
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“
COMPANY
”
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew J. Ritter
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Andrew J. Ritter, Chief Executive Officer
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Signature Page to Amendment No. 2 to
Amended and Restated Investors’
Rights Agreement
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“
INVESTORS
”
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JAVELIN VENTURE PARTNERS, L.P.
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By: Javelin Venture Partners GP, LP
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Its: General Partner
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By: Javelin Venture Partners GP, LLC
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Its: General Partner
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By:
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/s/ Noah Doyle
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Noah Doyle, its Managing Director
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Signature Page to Amendment No. 2 to
Amended and Restated Investors’
Rights Agreement
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“
INVESTORS
”
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STONEHENGE PARTNERS, LLC
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By:
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/s/ Ira Ritter
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Ira Ritter, its Managing Member
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Signature Page to Amendment No. 2 to
Amended and Restated Investors’
Rights Agreement
Exhibit 4.5
RITTER
PHARMACEUTICALS, INC.
AMENDMENT
No. 3 TO AMENDED AND RESTATED
INVESTORS’ RIGHTS AGREEMENT
This Amendment No. 3 to
Amended and Restated Investors’ Rights Agreement (this “
Amendment
”), dated as of December 4, 2014, is
made by and among Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), and the signatories
hereto.
RECITALS
A. The
Company and certain of its stockholders are parties to that certain Amended and Restated Investors’ Rights Agreement, dated
as of November 17, 2010 (the “
IRA
”), as amended by that certain Amendment No. 1 to Amended and Restated Investors’
Rights Agreement, dated as of January 13, 2011 (“
Amendment No. 1
”), and that certain Amendment No. 2 to Amended
and Restated Investors’ Rights Agreement, dated as of February 6, 2012 (“
Amendment No. 2
;” Amendment No.
1, Amendment No. 2 and the IRA are collectively referred to herein as the “
Existing Agreement
”). Defined terms
used but not otherwise defined herein or amended hereby shall have the meaning therefor set forth in the Existing Agreement.
B. Certain
of the parties to the Existing Agreement are parties to a Series C Preferred Stock and Warrant Purchase Agreement, dated an even
date herewith, among the Company and the investors listed on the Schedule of Investors thereto (the “
Series C Purchase
Agreement
”) and it is a condition to the closing of the sale of shares of Series C Preferred Stock of this Company to
such investors that the Existing Agreement be amended as herein provided.
C. Pursuant
to Section 6.1 of the Existing Agreement, the Existing Agreement and any term thereof may only be amended, waived, discharged or
terminated by a written instrument referencing the Existing Agreement and signed by the Company and Holders holding a majority
of the Registrable Securities, which amendment, waiver, discharge or termination shall be binding on each Holder and each future
holder of all securities of a Holder.
D. The
Company and the undersigned parties to this Amendment, other than the Company, have the requisite votes to amend the provisions
of Existing Agreement set forth below, which amendments shall be binding upon the Company, the undersigned parties and the other
parties to the Existing Agreement and each of their respective successors and assigns.
AGREEMENT
NOW, THEREFORE, in consideration
of the foregoing recitals and the mutual promises hereinafter set forth, the parties hereto agree as follows:
1. Amendments
to Existing Agreement.
(a) Effective
as of the date of this Amendment, the definition of “Investor” as set forth in the first paragraph of the Existing
Agreement shall include any purchasers of the Series C Preferred Stock pursuant to the Series C Purchase Agreement who are parties
to the Existing Agreement prior to the date hereof and/or who execute a signature page to this Amendment or a
joinder agreement pursuant to which such purchaser
shall agree to be bound by and subject to the terms and conditions of the Existing Agreement as amended hereby.
(b) Section
1.1(c) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:
““
Conversion
Stock
” shall mean shares of Common Stock issued upon conversion of the Series A-1 Preferred Stock, Series A-1 Preferred
Stock, the Series A-3 Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.”
(c) Section
1.1(i) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:
““
Initial
Public Offering
” shall mean the closing of the Company’s first firm commitment underwritten public offering of
the Company’s Common Stock registered under the Securities Act, provided that the aggregate gross proceeds to the Company
are greater than $10,000,000.”
(d) Section
1.1(z) of the Existing Agreement is hereby amended and restated in its entirety to read as follows:
““
Shares
”
shall mean the Company’s Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3 Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock.
(e) Section
1.1 of the Existing Agreement is hereby amended to add at the end thereof the following definitional paragraph:
““
Series
C Preferred Stock
” shall mean the shares of Series C Preferred Stock issued pursuant to that certain Series C Preferred
Stock and Warrant Purchase Agreement, dated as of December 4, 2014, by and among the Company and the Investors named therein (the
“
Series C Purchase Agreement
”).”
(f) Section
3.3 of the Existing Agreement is hereby amended to add at the end thereof the following:
“The Company will not, without
Board approval, including a majority of the Preferred Directors: (i) make any loan or advance to, or own any stock or other securities
of, any subsidiary or other corporation, partnership, or other entity unless it is wholly owned by the Company; (ii) make any loan
or advance to any person, including, any employee or director, except advances and similar expenditures in the ordinary course
of business or under the terms of an employee stock or option plan approved by the Board of Directors; (iii) guarantee any indebtedness
except for trade accounts of the Company or any subsidiary arising in the ordinary course of business; (iv) make any investment
other than investments in prime commercial paper, money market funds, certificates of deposit in any United States bank having
a net worth in excess of $100,000,000 or obligations issued or guaranteed by the United States of America, in each case having
a maturity not in excess of two (2) years; (v) incur any aggregate indebtedness in excess of $250,000 that is not already included
in a Board-approved budget, other than trade credit incurred in the ordinary course of business;
(vi) enter into or be a party to
any transaction with any director, officer or employee of the Company or any “associate” (as defined in Rule 12b-2
promulgated under the Exchange Act) of any such person except transactions resulting in payments to or by the Company in an amount
less than $10,000 per year, or transactions made in the ordinary course of business and pursuant to reasonable requirements of
the Company’s business and upon fair and reasonable terms that are approved by a majority of the Board of Directors; (vii)
hire, fire, or change the compensation of the executive officers, including approving any option plans; (viii) change the principal
business of the Company, enter new lines of business, or exit the current line of business; or (ix) sell, transfer, license, pledge
or encumber technology or intellectual property, other than licenses granted in the ordinary course of business. Notwithstanding
anything in this Agreement to the contrary, any option grant to any individual in an amount in excess of 2% of the fully diluted
shares of the Company will require approval by all members of the Board of Directors then in office.”
(h) Section
3.5 of the Existing Agreement is amended to add at the end thereof the following:
“The Company’s Board
of Directors shall permit Javelin Venture Partners, L.P. (“Javelin”) the right to designate one individual to attend
all meetings of the Board of Directors, to participate in a non-voting capacity, to receive all notices of such meetings and to
receive the information provided by the Company to the Board of Directors, in accordance with that certain Board Observer Confidentiality
Agreement by and between the Company and the designee of Javelin.”
(g) Section
5.1 of the Existing Agreement is hereby amended and restated to read in its entirety as set forth in Annex A attached hereto.
(h) The
first sentence of Section 6.1 of the Existing Agreement is hereby amended and restated to read in its entirety as follows:
“Except as
expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than
by a written instrument referencing this Agreement and signed by the Company and the Holders holding a majority of the Registrable
Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144); provided, however, that (a)
Holders purchasing shares of Series B Preferred Stock in a Closing after the Initial Closing (each as defined in the Purchase Agreement)
may become parties to this Agreement, by executing a counterpart of this Agreement without any amendment of this Agreement pursuant
to this paragraph or any consent or approval of any other Holder and (b) Holders purchasing shares of Series C Preferred Stock
in a Closing after the Initial Closing (each as defined in the Series C Purchase Agreement) may become parties to this Agreement,
by executing a counterpart of this Agreement without any amendment of this Agreement pursuant to this paragraph or any consent
or approval of any other Holder.”
(h) Section
6.2(c) of the Existing Agreement is hereby amended and restated to read in its entirety as follows:
“if to the
Company, one copy should be sent to Ritter Pharmaceuticals, Inc., 1801 Century Park East, No. 1820, Los Angeles, California 90067,
Attn: President, or at such other
address as the Company shall have
furnished to the Investors, with a copy, which shall not constitute notice, to Reed Smith LLP, 1901 Avenue of the Stars, Suite
700, Los Angeles, California 90067, Attn: Michael Sanders.”
2. Except
as expressly set forth in this Amendment, the Existing Agreement shall continue in full force and effect in accordance with its
terms.
3. This
Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this Amendment by facsimile transmission or electronic mail shall be effective
as delivery of a manually executed counterpart hereof.
4. All
corporate action on the part of the Company and its directors, officers, and stockholders necessary for the authorization, execution,
and delivery of this Amendment by the Company has been taken on or prior to the date hereof.
5. This
Amendment shall be governed by and construed and enforced in accordance with the laws of the State of California, without reference
to the conflict of laws provisions thereof.
[
Signature Pages Follow
]
IN
WITNESS WHEREOF,
the parties hereto have executed this Amendment as of the date set forth in the first paragraph
hereof.
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Michael D. Step
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Michael D. Step,
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Chief Executive Officer
|
Signature
Page to Amendment No. 3 to Amended And Restated
Investors’
Rights Agreement, as amended
|
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“INVESTORS”
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Javelin Venture Partners, L.P.
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By:
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Javelin Venture Partners GP, L.P.
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Its:
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General Partner
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By:
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Javelin Venture Partner GP, LLC
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Its:
|
General Partner
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By:
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/s/ Noah Doyle
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Noah Doyle, Managing Director
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SJ INVESTMENT COMPANY, LLC
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By:
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/s/ Dan Nathanson
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Dan Nathanson, Managing Director
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THE KURTZ McDERMOTT FAMILY TRUST
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By:
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/s/ Cynthia Kurtz
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Cynthia Kurtz, Trustee
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By:
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/s/ James McDermott
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James McDermott, Trustee
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Signature
Page to Amendment No. 3 to Amended And Restated
Investors’
Rights Agreement, as amended
|
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“INVESTORS”
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JAVELIN VENTURE PARTNERS I SPV I, LLC
|
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By: Javelin Venture Partners GP, L.P.
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Its: General Partner
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By: Javelin Venture Partners GP, LLC
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Its: General Partner
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By:
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/s/ Noah Doyle
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Name: Noah Doyle
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Title: Managing Director
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Signature
Page to Amendment No. 3 to Amended And Restated
Investors’
Rights Agreement, as amended
|
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/s/ Roger Markowitz
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Roger Markowitz
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Signature
Page to Amendment No. 3 to Amended And Restated
Investors’
Rights Agreement, as amended
ANNEX A
“5.1 Election
of the Board of Directors.
(a) The
Company's Certificate of Incorporation provides that (i) the holders of the majority of the Company's Series A-1 Preferred, voting
as a single class, shall be entitled to elect two directors (the “
Series A-1 Directors
”), (ii) the holders of
the majority of the Company's Series A-3 Preferred, voting as a single class, shall be entitled to elect one director (the “
Series
A-3 Director
”), (iii) the holders of the majority of the Company's Series B Preferred, voting as a single class, shall
be entitled to elect one director (the “
Series B Director
”), (iv) the holders of a majority of the Series C
Preferred, voting as a single class, shall be entitled to elect one director (the “
Series C Director;
” and collectively
with the Series A-1 Directors and Series B Director, the “
Preferred Directors
”) and (v) the Company's Preferred
Stock and the holders of the Company's Common Stock, voting together as one class, shall be entitled to elect any remaining directors
(the “
Joint Directors
”). Accordingly, during the term of this Agreement, each Investor agrees to vote all Shares
and shares of the Company's Common Stock held by such Investor in such manner as may be necessary to elect (and maintain in office)
as members of the Company's Board of Directors the following individuals: (i) two Series A-1 Designees (as defined below) as the
Series A-1 Directors, (ii) one Series A-3 Designee (as defined below) as the Series A-3 Director, (iii) one Series B Designee (as
defined below) as the Series B Director, (iv) one Series C Designee (as defined below) as the Series C Director, and (v) one Joint
Designee (as defined below) as a Joint Director.
(b) The
current size of the Board of Directors is six (6) and can be changed by resolution of the Board of Directors. The designees to
the Company's Board of Directors described above (each a “
Designee
”) shall be selected as follows:
(i) the two “
Series A-1 Designees
”
shall be chosen by a majority-in-interest of the holders of outstanding shares of the Company's Series A-1 Preferred and shall
initially be Andrew Ritter and Ira Ritter,
(ii) the one “
Series A-3 Designee
”
shall be chosen by a majority-in-interest of the holders of outstanding shares of the Company's Series A-3 Preferred and shall
initially be Thomas Adamek,
(iii) the one “
Series B Designee
”
shall be chosen by a majority-in-interest of the holders of outstanding shares of the Company's Series B Preferred, which seat
shall be vacant as of immediately subsequent to the Initial Closing as that term is defined under the Series C Purchase Agreement,
(iv) the one “
Series C Designee
"
shall be chosen by a majority-in-interest of the holders of outstanding shares of the Company's Series c Preferred and shall initially
be Noah Doyle,
(v) the “
Joint Designee
” shall be the Company's
Chief Executive Officer, and shall initially be Michael Step.
Such approval shall take the form of a notice signed by a majority-in-interest
of the holders of Shares and the holders of Common Stock; provided however, that if no such notice has been delivered to the Secretary
of the Company within ten days prior to any regular or special meeting of stockholders or five days after receiving an Action by
Written Consent, the Secretary of the Company shall deliver a ballot to each holder of Shares and each holder of Common Stock.
Such ballot shall contain the nominee or nominees of any holder of Shares or any holder of Common Stock, the names of which were
delivered to the Secretary prior to the mailing of the ballot, and shall contain instructions that each holder of Shares and each
holder of Common Stock is to complete and return such ballot to the Secretary of the Company within five days of the effective
date of such notice.
(c)
Changes
in Designees
. From time to time during the term of this Agreement, Investors who hold sufficient Shares to select a Designee
pursuant to this Agreement may, in their sole discretion: (i) notify the Company in writing of an intention to remove from the
Company's Board of Directors any incumbent Designee who occupies a Board seat for which such Investors are entitled to designate
the Designee; or (ii) notify the Company in writing of an intention to select a new Designee for election to a Board seat for which
such Voting Parties are entitled to designate the Designee (whether to replace a prior Designee or to fill a vacancy in such Board
seat). In the event of such an initiation of a removal or selection of a Designee under this section, the Company shall take such
reasonable actions as are necessary to facilitate such removals or elections, including, without limitation, soliciting the votes
of the appropriate stockholders, and the Investors shall vote their Shares to cause: (i) the removal from the Company's Board of
Directors of the Designee or Designees so designated for removal; and (ii) the election to the Company's Board Directors of any
new Designee or Designees so designated.”
Exhibit 10.1
ORIGINAL
OFFICE
LEASE
Between
DOUGLAS EMMETT 1997, LLC,
a Delaware limited liability company
as Landlord
and
RITTER PHARMACEUTICALS, INC.,
a Delaware corporation
as Tenant
Date
June 25, 2013
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Initial
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Initial
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Initial
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Initial
|
OFFICE LEASE
BASIC LEASE INFORMATION TABLE
|
Date:
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June 25, 2013
|
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Landlord:
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DOUGLAS EMMETT 1997, LLC, a Delaware limited liability company
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Tenant:
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RITTER PHARMACEUTICALS, INC., a Delaware corporation
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SECTION
|
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1.1
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Premises:
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1801 Century Park East, Suite 1820 Los Angeles, California 90067
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1.4
|
Rentable Area of Premises:
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Approximately 1,712 square feet
|
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1.4
|
Usable Area of Premises:
|
Approximately 1,450 square feet
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2.1
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Term:
|
Two (2) years and one (1) month
|
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Commencement Date:
|
September 1, 2013 (as modified by Section 2.1)
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Expiration Date:
|
September 30, 2015 (as modified by Section 2.1)
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3.1
|
Fixed Monthly Rent:
|
$5,032.70
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3.3
|
Fixed Monthly Rent Increase:
|
Three percent (3%) per annum
|
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Date of First Increase:
|
October 1, 2014
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Frequency of Increase:
|
Annually
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3.7
|
Security Deposit:
|
$15,249.08; provided, however that if Tenant is not in default under any term or provision contained in this Lease beyond any applicable notice and cure period, Landlord shall credit back to Tenant a portion of the Security Deposit in accordance with Section 3.7 of this Lease.
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4.1
|
Tenant’s Share:
|
0.45%
|
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4.2
|
Base Year for Operating Expenses:
|
2014
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6.1
|
Use of Premises:
|
General office use consistent with the operation of a first-class office building in the Century City area
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16.1
|
Tenant’s Address for Notices:
|
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Before the Commencement Date:
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1880 Century Park East, Suite 1100
Los Angeles, California 90067
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After the Commencement Date
and Tenant’s Billing Address:
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1801 Century Park East, Suite 1820
Los Angeles, California 90067
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Landlord’s Address for Notices:
|
Douglas Emmett 1997, LLC
c/o Douglas Emmett Management, LLC
Director of Property Management
808 Wilshire Boulevard, Suite 200
Santa Monica, California 90401
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20.5
|
Brokers:
|
Douglas Emmett Management, LLC
808 Wilshire Boulevard,
Suite 200
Santa Monica, California 90401
and
Held Properties, Inc.
1880 Century Park East
Los Angeles, California 90067
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21.1
|
Parking Permits:
|
The right but not the obligation to purchase up to three (3) permits for unreserved spaces located on Level B of the Building’s parking facility and two (2) valet-assist permits.
|
Except as noted hereinbelow, the
foregoing Basic Lease Information Table (the “BLI Table”) is hereby incorporated into and made a part of this Lease.
The Section reference in the left margin of the Basic Lease Information exists solely to indicate where such reference initially
appears in this Lease document. Except as specified hereinbelow, each such reference in this Lease document shall incorporate the
applicable Basic Lease Information. However, in the event of any conflict between any reference contained in the Basic Lease Information
and the specific wording of this Lease, the wording of this Lease shall control.
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Initial
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Initial
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Initial
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Initial
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ARTICLE
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OFFICE LEASE
TABLE OF CONTENTS
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PAGE
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ARTICLE 1
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DEMISE OF PREMISES
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1
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ARTICLE 2
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COMMENCEMENT DATE AND TERM
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3
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ARTICLE 3
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PAYMENT OF RENT, LATE CHARGE
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3
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ARTICLE 4
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ADDITIONAL RENT
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6
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ARTICLE 5
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ETHICS
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8
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ARTICLE 6
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USE OF PREMISES
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8
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ARTICLE 7
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CONDITION UPON VACATING & REMOVAL OF PROPERTY
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9
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ARTICLE 8
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UTILITIES AND SERVICES
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9
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ARTICLE 9
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TENANT’S INDEMNIFICATION AND LIMITATION ON LANDLORD’S LIABILITY
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12
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ARTICLE 10
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COMPLIANCE WITH LAWS
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13
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ARTICLE 11
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ASSIGNMENT AND SUBLETTING
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13
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ARTICLE 12
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MAINTENANCE, REPAIRS, DAMAGE, DESTRUCTION, RENOVATION AND/OR ALTERATION
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16
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ARTICLE 13
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CONDEMNATION
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20
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ARTICLE 14
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MORTGAGE SUBORDINATION; ATTORNMENT AND MODIFICATION OF LEASE
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20
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ARTICLE 15
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ESTOPPEL CERTIFICATES
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21
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ARTICLE 16
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NOTICES
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21
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ARTICLE 17
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DEFAULT AND LANDLORD’S OPTION TO CURE
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22
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ARTICLE 18
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DAMAGES; REMEDIES; RE-ENTRY BY LANDLORD; ETC.
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23
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ARTICLE 19
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INSURANCE
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24
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ARTICLE 20
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MISCELLANEOUS
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27
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ARTICLE 21
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PARKING
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EXHIBITS
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A —
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Premises Plan
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B —
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Intentionally Omitted
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B-l —
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Construction by Tenant During Term
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C —
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Rules and Regulations
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D —
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Intentionally Omitted
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E —
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Intentionally Omitted
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F —
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Asbestos Rider
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Initial
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Initial
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OFFICE LEASE
This Office Lease
(this
“Lease”), dated June 25, 2013, is by and between DOUGLAS EMMETT 1997, LLC, a Delaware limited liability company (“Landlord”),
with an office at 808 Wilshire Boulevard, Suite 200, Santa Monica, California 90401, and RITTER PHARMACEUTICALS, INC., a Delaware
corporation (“Tenant”), with an office at 1880 Century Park East, Suite 1100, Los Angeles, California 90067.
ARTICLE 1
DEMISE OF PREMISES
Section 1.1. Demise.
Subject to the
covenants and agreements contained in this Lease, Landlord leases to Tenant and Tenant hires from Landlord, Suite Number 1820 (the
“Premises”) on the eighteenth (18
th
) floor, in the building located at 1801 Century Park East, Los Angeles,
California 90067 (the “Building”). The configuration of the Premises is shown on Exhibit A, attached hereto and made
a part hereof by reference.
Tenant acknowledges that
it has made its own inspection of and inquiries regarding the Premises, which are already improved. Therefore, except for the improvements
to be completed by Landlord’s contractor pursuant to Section 1.1.1 below, Tenant accepts the Premises in their “as-is”
condition. Tenant further acknowledges that Landlord has made no representation or warranty, express or implied, except as are
contained in this Lease and its Exhibits, regarding the condition, suitability or usability of the Premises or the Building for
the purposes intended by Tenant.
The Building, the Building’s
parking facilities, any outside plaza areas, land and other improvements surrounding the Building which are designated from time
to time by Landlord as Common Areas appurtenant to or servicing the Building, and the land upon which any of the foregoing are
situated, are herein sometimes collectively referred to as the “Real Property”.
1.1.1
Prior to
the Commencement Date, Landlord shall, at Landlord’s sole expense, complete the following improvements to the Premises (collectively,
the “Improvements”), using Building standard materials:
a) Remove
the door and frame located on the wall between Suite 1801 and the Premises, seal the opening and patch and paint the sealed area;
b) Extend
the existing wall located between Suite 1801 and the Premises to the deck above;
c) Install
new building standard carpet in a color reasonably acceptable to Tenant and rubberized base in the existing conference room; and
d) Install
a new home run conduit, backboard, data cabinet and associated electrical outlet in the Premises and relocate and reattach the
existing data cabling located in Suite 1801 to the Premises.
Tenant has
provided Landlord with Tenant’s selection of color for the conference room carpet. Tenant acknowledges and agrees that Landlord
shall not be obligated to commence the Improvements prior to the full execution of this Lease.
If Tenant elects
to make any other improvements to the Premises during the Term, the same shall be considered a Tenant Change, to be completed by
Tenant, at Tenant’s sole expense, pursuant to the provisions of Article 12 of this Lease.
Section 1.2. Tenant’s Non-Exclusive
Use.
Subject to the contingencies contained herein, Tenant is granted the nonexclusive use of the common corridors and hallways,
stairwells, elevators, restrooms, parking facilities, lobbies and other public or Common Areas located on the Real Property (collectively,
“Common Areas”). However, the manner in which such public and Common Areas are maintained and operated shall be at
the reasonable discretion of Landlord, and Tenant’s use thereof shall be subject to such reasonable and non-discriminatory
rules, regulations and restrictions as Landlord may make from time to time.
Section 1.3. Landlord’s Reservation
of Rights.
Landlord specifically reserves to itself use, control and repair of the structural portions of all perimeter walls
of the Premises, any balconies, terraces or roofs adjacent to the Premises (including any flagpoles or other installations on
said walls, balconies, terraces or roofs) and any space in and/or adjacent to the Premises used for shafts, stairways, pipes,
conduits, ducts, mail chutes, conveyors, pneumatic tubes, electric or other utilities, sinks, fan rooms or other Building facilities,
and the use
thereof, as well as access thereto through the Premises. Landlord also specifically reserves to itself the
following rights:
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a)
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To designate all sources furnishing sign painting or lettering;
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b)
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To constantly have pass keys to the Premises;
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c)
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To grant to anyone the exclusive right to conduct any particular business or undertaking in the
Building, so long as Landlord’s granting of the same does not prohibit Tenant’s use of the Premises for Tenant’s
Specified Use, as defined in Article 6;
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d)
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To enter the Premises at any reasonable time with reasonable notice (except for emergencies) to
inspect, repair, alter, improve, update or make additions to the Premises or the Building so long as Tenant’s access to and
use of the Premises is not materially impaired thereby;
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e)
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During the last six (6) months of the Term, to exhibit the Premises to prospective future tenants
upon not less than 24 hours prior notice;
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f)
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Subject to the provisions of Article 12, to, at any time, and from time to time, whether at Tenant’s
request or pursuant to governmental requirement, repair, alter, make additions to, improve, or
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decorate all or any portion of the
Real Property, Building or Premises at any reasonable time with reasonable notice (except for emergencies), so long as Tenant’s
access to and use of the Premises is not materially impaired thereby. In connection therewith, and without limiting the generality
of the foregoing rights, Landlord shall specifically have the right to remove, alter, improve or rebuild all or any part of the
lobby of the Building as the same is presently or shall hereafter be constituted;
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g)
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Subject to the provisions of Article 12, Landlord reserves the right to make alterations or additions
to or change the location of elements of the Real Property and any Common Areas appurtenant thereto at any reasonable time with
reasonable notice (except for emergencies), so long as Tenant’s access to and use of the Premises is not materially impaired
thereby; and/or
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h)
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To take such other actions as may reasonably be necessary when the same are required to preserve,
protect or improve the Premises, the Building, or Landlord’s interest therein at any reasonable time with reasonable notice
(except for emergencies), so long as Tenant’s access to and use of the Premises is not materially impaired thereby.
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Tenant acknowledges and
agrees that: (a) the Premises are part of an office building owned, operated, managed and leased by Landlord and occupied by numerous
tenants; (b) Landlord and such tenants are engaged from time to time in a variety of construction projects inside individual premises
as well as in Common Areas as part of the normal course of business in the Building; and (c) such construction activities may cause,
among other things, noise, vibration, dust, odors, increased foot traffic in the Building and in elevators and corridors, and increased
motor vehicle traffic in parking facilities. In recognition of the foregoing, Tenant hereby releases Landlord and all of its parents,
subsidiaries, divisions, employees, affiliates, assigns, officers, directors, shareholders, members, agents, predecessors, successors,
trustees, beneficiaries and representatives (collectively, the “Landlord Parties”), from any and all claims (including
claims for abatement of Rent or constructive eviction), debts, liabilities, demands, obligations, costs, expenses, actions and
causes of action of every nature, character and description, whether known or unknown, asserted or unasserted, fixed or contingent
arising out of or in connection with the activities and conditions described in the foregoing clauses (b) and (c). Furthermore,
Tenant agrees that none of the activities and conditions described in the foregoing clauses (b) and (c) shall be grounds for any
claim by Tenant or any party claiming through Tenant that Landlord has breached the terms of Section 1.5 below or any other provision
of this Lease, or violated any statute or other applicable law which purports to govern the rights or obligations of Landlord and
Tenant concerning the matters set forth in Section 1.5.
Section 1.4. Area.
Landlord and Tenant
agree that the usable area (the “Usable Area”) of the Premises has been measured using the 2010 ANSI/BOMA Standard
published collectively by the American National Standards Institute and the Building Owners’ and Managers’ Association
(“ANSI/BOMA Standard”), as a guideline, and that Landlord is utilizing a deemed add-on factor of 18.04% to compute
the rentable area (the “Rentable Area”) of the Premises. Rentable Area herein is calculated as 1.1804times the estimated
Usable Area, regardless of what the actual square footage of the Common Areas of the Building may be, and whether or not they are
more or less than 18.04% of the total estimated Usable Area of the Building. The purpose of this calculation is solely to provide
a general basis for comparison and pricing of this space in relation to other spaces in the market area.
Landlord and Tenant further
agree that even if the Rentable or Usable Area of the Premises and/or the total Building Area are later determined to be more or
less than the figures stated herein, for all purposes of this Lease, the figures stated herein shall be conclusively deemed to
be the actual Rentable or Usable Area of the Premises, as the case may be.
Section 1.5. Quiet Enjoyment.
Contingent
upon Tenant keeping, observing and performing all of the covenants, agreements, terms, provisions and conditions of this Lease
on its part to be kept, observed and performed, and subject to the limitations imposed under Article 14 of this Lease, Tenant shall
lawfully and quietly hold, occupy and enjoy the Premises during the Term.
Section 1.6. No Light, Air or View Easement.
Any diminution or shutting off of light, air or view by any structure which is now or may hereafter be erected on the Building,
the Real Property or on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord.
Noise, dust or vibration or other ordinary incidents to new construction of improvements on the Building, the Real Property or
on lands adjacent to the Building, whether or not by Landlord, shall in no way affect this Lease or impose any liability on Landlord.
Section 1.7. Relocation.
Landlord shall
have the right at any time, except during the last six (6) months of the Term, and after giving Tenant a minimum of sixty (60)
days’ prior written notice, to:
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a)
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provide and furnish Tenant with space elsewhere in the Building of approximately the same size
as, with improvements comparable to the improvements in the Premises (the “Substitute Premises”), and
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b)
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relocate Tenant to such Substitute Premises.
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Landlord shall pay all
reasonable costs and expenses incurred as a result of such relocation (including Tenant’s reasonable reprinting costs for
announcements, and to replace Tenant’s existing stock of stationery and business cards). If Landlord moves Tenant to the
Substitute Premises, each and every term, covenant and condition of this Lease shall remain in full force and effect and be deemed
applicable to the Substitute Premises, as though Landlord and Tenant had entered into an express written amendment of this Lease
with respect thereto, except that (i) if the approximate rentable square footage of the Substitute Premises is less than that of
the Premises, the Fixed Monthly Rent and Tenant’s Share of Operating Expense increases shall be appropriately reduced or
(ii) if the approximate rentable square footage of the Substitute Premises is greater than that of the Premises, the Fixed Monthly
Rent and
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Initial
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Tenant’s Share of Operating
Expense increases shall be as set forth in this Lease. Landlord shall use commercially reasonable efforts to cause such relocation
to occur over a weekend period.
If Tenant refuses to permit
Landlord to relocate Tenant as specified above, Landlord shall have the right to terminate this Lease effective ninety (90) days
from the date Landlord provided Tenant with the original notification of intent to relocate.
ARTICLE 2
COMMENCEMENT DATE AND TERM
Section 2.1. Commencement Date and Term.
The term of this Lease (“Term”) shall commence on September 1, 2013 (the “Commencement Date”), and shall
end, unless sooner terminated as otherwise provided herein, at midnight on September 30, 2015 (the “Termination Date”).
Landlord, subject to the terms of this paragraph, shall grant Tenant access to the Premises up to approximately fourteen (14) days
prior to the Commencement Date, subject to (a) the mutual execution of this Lease, (b) delivery to Landlord of the certificates
of insurance required under Section 19.2 of this Lease and (c) payment to Landlord of all funds due upon execution of this Lease
by Tenant, solely for the purpose of installing Tenant’s furniture, fixtures and equipment, computer and telephone cabling (the
“Access Period”). Provided Tenant’s access to the Premises is for the purposes herein stated and not for the
conduct of its business in the Premises, then such access shall not serve to accelerate the Commencement Date nor shall Tenant’s
failure to exercise its right of access for any reason whatsoever serve to delay the Commencement Date. During the Access Period,
if any, Tenant shall be subject to Landlord’s reasonable administrative control and supervision and Tenant shall comply with all
of the provisions and covenants contained in this Lease, except that Tenant shall not be obligated to pay Fixed Monthly Rent or
Additional Rent until the Commencement Date (as defined above). Tenant shall not be granted access to the Premises unless the conditions
specified in clauses (a), (b) and (c) above have been satisfied in full.
Tenant’s taking
possession of the Premises and/or commencing Tenant’s normal business operations in the Premises shall be deemed conclusive
evidence that, as of the Commencement Date, the Premises are in good order and repair.
Section 2.2. Holding Over.
If Tenant
fails to deliver possession of the Premises on the Termination Date, but holds over after the expiration or earlier termination
of this Lease without the express prior written consent of Landlord, such tenancy shall be construed as a tenancy at sufferance
on the same terms and conditions as are contained herein, except that the Fixed Monthly Rent payable by Tenant during such period
of holding over shall automatically increase as of the Termination Date to an amount equal to one hundred fifty percent (150%)
of the Fixed Monthly Rent payable by Tenant for the calendar month immediately prior to the date when Tenant commences such holding
over (the “Holdover Rent”). During any period of holding over Tenant shall be obligated to pay Holdover Rent for a
full calendar month whether or not Tenant remains in possession of the Premises for the entire calendar month and there shall be
no pro-rata apportionment of Holdover Rent. Tenant’s payment of such Holdover Rent, and Landlord’s acceptance thereof,
shall not constitute a waiver by Landlord of any of Landlord’s rights or remedies with respect to such holding over, nor
shall it be deemed to be a consent by Landlord to Tenant’s continued occupancy or possession of the Premises past the time
period covered by Tenant’s payment of the Holdover Rent.
Furthermore, if Tenant
fails to deliver possession of the Premises to Landlord upon the expiration or earlier termination of this Lease, and Landlord
has theretofore notified Tenant in writing that Landlord requires possession of the Premises for a succeeding tenant, then, in
addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless
from all loss, costs (including reasonable attorneys’ fees and expenses) and liability resulting from such failure, including
without limiting the foregoing, any claims made by any succeeding tenant arising out of Tenant’s failure to so surrender,
and any lost profits to Landlord resulting therefrom.
Notwithstanding the provisions
contained hereinabove regarding Tenant’s liability for a continuing holdover, Landlord agrees to use commercially reasonable
efforts to insert into any future lease of another tenant proposing to occupy the Premises provisions similar to those contained
in Section 2.1, permitting mitigation of Tenant’s damages arising out of Tenant’s temporary holdover.
ARTICLE 3
PAYMENT OF RENT, LATE CHARGE
Section 3.1. Payment of Fixed Monthly Rent
and Additional Rent.
“Rent” shall mean: all payments of monies in any form whatsoever required under the terms
and provisions of this Lease, and shall consist of:
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a)
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“Fixed Monthly Rent”, which shall be payable in equal monthly installments of $5,032.70;
plus
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b)
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Additional Rent as provided in Article 4 and elsewhere in this Lease.
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Section 3.2. Manner of Payment.
Tenant
shall pay Fixed Monthly Rent and Additional Rent immediately upon the same becoming due and payable, without demand therefor, and
without any abatement, set off or deduction whatsoever, except as may be expressly provided in this Lease. Landlord’s failure
to submit statements to Tenant stating the amount of Fixed Monthly Rent or Additional Rent then due, including Landlord’s
failure to provide to Tenant a calculation of the adjustment as required in Section 3.3 or the Escalation Statement referred to
in Article 4, shall not constitute Landlord’s waiver of Tenant’s requirement to pay the Rent called for herein. Tenant’s
failure to pay Additional Rent as provided herein shall constitute a material default equal to Tenant’s failure to pay Fixed
Monthly Rent when due.
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Rent shall be payable
in advance on the first day of each and every calendar month throughout the Term, in immediately available funds, to Landlord at
1801 Century Park East, Suite 760, Los Angeles, California 90067, or at such other place(s) as Landlord designates in writing to
Tenant. Tenant’s obligation to pay Rent shall begin on the Commencement Date and continue throughout the Term, without abatement,
setoff or deduction, except as otherwise specified hereinbelow.
Concurrent with Tenant’s
execution and delivery to Landlord of this Lease, Tenant shall pay to Landlord the Fixed Monthly Rent due for the first month of
the Term.
Section 3.3. Fixed Monthly Rent Increase.
Commencing on October 1, 2014, and continuing throughout the remainder of the initial Term, the Fixed Monthly Rent payable
by Tenant shall increase from $5,032.70 per month to $5,183.68 per month.
Notwithstanding the foregoing,
Tenant shall be permitted to defer one hundred percent (100%) of the Fixed Monthly Rent due for the month of October 2013 (the
amount of Fixed Monthly Rent deferred shall be referred to herein as the “Rent Deferral Amount”). So long as Tenant
has not committed a material default during the Term, which material default continues after the expiration of any notice and cure
period, the entire Rent Deferral Amount shall be abated and forgiven as of the Termination Date; provided, however, that if Tenant
does commit a material default during the Term, and if such material default continues after the expiration of any notice and cure
periods, then (a) Tenant shall pay to Landlord upon demand the entire Rent Deferral Amount due for the months of the Term prior
to the occurrence of such material default, including late charges and interest thereon at the rate of ten percent (10%) per annum,
computed from the date of such deferral, as if the same had been due if the rent deferral had not occurred, and (b) Tenant shall
not be entitled to any additional or future deferral of Fixed Monthly Rent.
Section 3.4. Tenant’s Payment of Certain
Taxes.
Tenant shall, within thirty (30) days following Tenant’s receipt of Landlord’s invoices, reimburse Landlord,
as Additional Rent, for any and all taxes, surcharges, levies, assessments, fees and charges payable by Landlord when:
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assessed on, measured by, or reasonably attributable to:
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i)
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the cost or value of Tenant’s equipment, furniture, fixtures and other personal property
located in the Premises; or
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ii)
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the cost or value of any
leasehold improvements in or to the Premises in excess of $35.00
per square foot,
provided the same have been made in connection with Tenant’s execution of this
Lease, and without regard to whether title to or payment for such improvements vests
with Tenant or Landlord;
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b)
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on or measured by any rent payable hereunder, including, without limitation, any gross income tax,
gross receipts tax, or excise tax levied by the City or County of Los Angeles or any other governmental body with respect to the
receipt of such rent (computed as if such rent were the only income of Landlord), but solely when levied by the appropriate City
or County agency in lieu of, or as an adjunct to, such business license(s), fees or taxes as would otherwise have been payable
by Tenant directly to such taxing authority;
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c)
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upon or with respect to the possession, leasing, operating, management, maintenance, alteration,
repair, use or occupancy by Tenant of the Premises or any portion thereof; or
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d)
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solely because Landlord and Tenant entered into this transaction or executed any document transferring
an interest in the Premises to Tenant. If it becomes unlawful for Tenant so to reimburse Landlord, the rent payable to Landlord
under this Lease shall be revised to net Landlord the same rent after imposition of any such tax as would have been payable to
Landlord prior to the imposition of any such tax.
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Said taxes shall
be due and payable whether or not now customary or within the contemplation of Landlord and Tenant. Notwithstanding the above,
in no event shall the provisions of this Section 3.4 serve to entitle Landlord to reimbursement from Tenant for any federal, state,
county or city income tax payable by Landlord or the managing agent of Landlord.
Section 3.5. Certain Adjustments.
If:
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a)
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the Commencement Date occurs on other than January 1st of a calendar year, or this Lease expires
or terminates on other than December 31st of a calendar year;
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b)
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the size of the Premises changes during a calendar year; or
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any abatement of Fixed Monthly Rent or Additional Rent occurs during a calendar year,
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then the amount payable by Tenant or reimbursable
by Landlord during such year shall be adjusted proportionately on a daily basis, and the obligation to pay such amount shall survive
the expiration or earlier termination of this Lease.
If the Commencement Date
occurs on other than the first day of a calendar month, or this Lease expires on a day other than the last day of a calendar month,
then the Fixed Monthly Rent and Additional Rent payable by Tenant shall be appropriately apportioned on a prorata basis for the
number of days remaining in the month of the Term for which such proration is calculated.
If the amount of Fixed
Monthly Rent or Additional Rent due is modified pursuant to the terms of this Lease, such modification shall take effect the first
day of the calendar month immediately following the date such modification would have been scheduled.
Section 3.6. Late Charge and Interest.
Tenant
acknowledges that late payment by Tenant to Landlord of Fixed Monthly Rent or Additional Rent will cause Landlord to incur costs
not contemplated by this
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Lease, the exact amount of which are extremely
difficult and impracticable to fix. Such costs include, without limitation, processing and accounting charges and late charges
that may be imposed on Landlord by the terms of any encumbrance and note secured by any encumbrance covering the Premises. Therefore,
if any installment of Fixed Monthly Rent or Additional Rent and other payment due from Tenant hereunder is not received by Landlord
within seven (7) business days of the date it becomes due, Tenant shall pay to Landlord on demand an additional sum equal to five
percent (5%) of the overdue amount as a late charge. The parties agree that this late charge represents a fair and reasonable settlement
against the costs that Landlord will incur by reason of Tenant’s late payment. Acceptance of any late charge shall not constitute
a waiver of Tenant’s default with respect to the overdue amount, or prevent Landlord from exercising any of the other rights
and remedies available to Landlord.
Every installment of Fixed
Monthly Rent and Additional Rent and any other payment due hereunder from Tenant to Landlord which is not paid within twelve (12)
business days after the same becomes due and payable shall, in addition to any Late Charge already paid by Tenant, bear interest
at the rate of ten percent (10%) per annum from the date that the same originally became due and payable until the date it is paid.
Landlord shall bill Tenant for said interest, and Tenant shall pay the same within five (5) days of receipt of Landlord’s
billing.
Notwithstanding the foregoing,
Tenant shall not be assessed any late charge for the first late payment in each twenty-four (24) month period of the Term so long
as Tenant pays such amount within five (5) days of Tenant’s receipt of notice that such amount has not been paid.
Section 3.7. Security Deposit.
Concurrent with Tenant’s execution and tendering of this Lease to Landlord, Tenant shall deposit an amount equivalent
to the Fixed Monthly Rent for the sixth (6
th
) month ($5,032.70), thirteenth (13
th
) month ($5,032.70) and
twenty-fifth (25
th
) month ($5,183.68) of the Term in the total sum of $15,249.08 (the “Security Deposit”).
Notwithstanding the foregoing, provided that Tenant is not in default in the performance of any of its obligations under this Lease
beyond any applicable notice and cure period, on February 1, 2014, Landlord shall credit back to Tenant the amount of $5,032.70,
which amount shall be applied to Tenant’s obligation to pay Fixed Monthly Rent for that month of February of 2014 and, if
so applied, the term “Security Deposit” shall automatically be amended to mean the amount of $10,216.38. Further, provided
that Tenant is not in default in the performance of any of its obligations under this Lease beyond any applicable notice and cure
period, on September 1, 2014, Landlord shall credit back to Tenant the amount of $5,032.70, which amount shall be applied to Tenant’s
obligation to pay Fixed Monthly Rent for that month of September of 2014, and if so applied, the term “Security Deposit”
shall automatically be amended to mean the amount of $5,183.68, which amount Tenant shall thereafter at all times maintain on deposit
with Landlord for the remainder of the initial Term as security for Tenant’s full and faithful observance and performance
of its obligations under this Lease (expressly including, without limitation, the payment as and when due of the Fixed Monthly
Rent, Additional Rent and any other sums or damages payable by Tenant hereunder and the payment of any and all other damages for
which Tenant shall be liable by reason of any act or omission contrary to any of said covenants or agreements). Landlord shall
have the right to commingle the Security Deposit with its general assets and shall not be obligated to pay Tenant interest thereon.
If at any time Tenant
defaults in the performance of any of its obligations under this Lease, after the expiration of notice and the opportunity to cure
(if a notice and cure period is provided for under this Lease for the particular default), then, Landlord shall not be obligated
to provide Tenant with a credit for any portion of the Security Deposit as set forth hereinabove and may:
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a)
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apply as much of the Security Deposit as may be necessary to cure Tenant’s non-payment of
the Fixed Monthly Rent, Additional Rent and/or other sums or damages due from Tenant, including any sums due under Section 20.26
of this Lease; and/or;
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b)
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if Tenant is in default of any of the covenants or agreements of this Lease; apply so much of the
Security Deposit as may be necessary to reimburse all expenses incurred by Landlord in curing such default; or
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c)
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if the Security Deposit is insufficient to pay the sums specified in Section 3.7 (a) or (b), elect
to apply the entire Security Deposit in partial payment thereof, and proceed against Tenant pursuant to the provisions of Article
17 and Article 18 herein.
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Tenant hereby waives the
provisions of Section 1950.7 of the California Civil Code, and all other laws, statutes, ordinances or other governmental rules,
regulations or requirements now in force or which may hereafter be enacted or promulgated, which (i) establish the time frame by
which Landlord must refund a security deposit under a lease, and/or (ii) provide that Landlord may claim from the Security Deposit
only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by Tenant or to clean the
Premises, it being agreed that Landlord may, in addition, claim those sums specified in Article 18 below, and/or those sums reasonably
necessary to compensate Landlord for any loss or damage caused by Tenant’s breach of this Lease or the acts or omission of
Tenant or any Tenant Party. As used in this Lease a “Tenant Party” shall mean Tenant, any employee of Tenant, or any
agent, authorized representative, design consultant or construction manager engaged by or under the control of Tenant.
If, as a result of Landlord’s
application of any portion or all of the Security Deposit, the amount held by Landlord declines to less than the amount of Security
Deposit required under this Section 3.7, Tenant shall, within ten (10) days after demand therefor, deposit with Landlord additional
cash sufficient to bring the then-existing balance held as the Security Deposit to the amount specified hereinabove. Tenant’s
failure to deposit said amount shall constitute a material breach of this Lease.
At the expiration or earlier
termination of this Lease, Landlord shall deduct from the Security Deposit being held on behalf of Tenant any unpaid sums, costs,
expenses or damages payable by Tenant pursuant
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Initial
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Initial
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to the provisions of this Lease; and/or any
costs required to cure Tenant’s default or performance of any other covenant or agreement of this Lease, and shall, within
thirty (30) days after the expiration or earlier termination of this Lease, return to Tenant, without interest, all or such part
of the Security Deposit as then remains on deposit with Landlord.
ARTICLE 4
ADDITIONAL RENT
Section 4.1.
Certain Definitions.
As used in this Lease:
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a)
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“Escalation Statement” means a statement by Landlord, setting forth the amount payable
by Tenant or by Landlord, as the case may be, for a specified calendar year pursuant to this Article 4.
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b)
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“Operating Expenses” means the following in a referenced calendar year, including the
Base Year as hereinafter defined, calculated assuming the Building is at least ninety-five percent (95%) occupied: all costs of
management, operation, maintenance, and repair of the Building.
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By way of illustration
only, Operating Expenses shall include, but not be limited to: management fees, which shall not exceed those reasonable and customary
in the geographic area in which the Building is located; water and sewer charges; any and all insurance premiums not otherwise
directly payable by Tenant; license, permit and inspection fees; air conditioning (including repair of same); heat; light; power
and other utilities; steam; labor; cleaning and janitorial services; guard services; supplies; materials; equipment and tools.
Operating Expenses shall
also include the cost or portion thereof of those capital improvements made to the Building by Landlord during the Term;
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i)
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to the extent that such capital improvements reduce other direct expenses, when the same were made to the Building by Landlord
after the Commencement Date, or
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ii)
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that are required under any governmental law or regulation that was not applicable to the Building as of the Commencement Date.
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Said capital improvement
costs, or the allocable portion thereof (as referred to in clauses (i) and (ii) above), shall be amortized pursuant to generally-accepted
accounting principles, together with interest on the unamortized balance at the rate of ten percent (10%) per annum.
Operating Expenses shall
also include all general and special real estate taxes, increases in assessments or special assessments and any other ad valorem
taxes, rates, levies and assessments paid during a calendar year (or portion thereof) upon or with respect to the Building and
the personal property used by Landlord to operate the Building, whether paid to any governmental or quasi-governmental authority,
and all taxes specifically imposed in lieu of any such taxes (but excluding taxes referred to in Section 3.4 for which Tenant or
other tenants in the Building are liable) including fees of counsel and experts, reasonably incurred by, or reimbursable by Landlord
in connection with any application for a reduction in the assessed valuation of the Building and/or the land thereunder or for
a judicial review thereof, (collectively “Appeal Fees”), but solely to the extent that the Appeal Fees result directly
in a reduction of taxes otherwise payable by Tenant. However, in no event shall the portion of Operating Expenses used to calculate
any billing to Tenant attributable to real estate taxes and assessments for any expense year be less than the billing for real
estate taxes and assessments during the Base Year.
Operating Expenses shall
also include, but not be limited to, the premiums for the following insurance coverage: all-risk, structural, fire, boiler and
machinery, liability, earthquake and for replacement of tenant improvements to a maximum of $35.00 per usable square foot, and
for such other coverage(s), and at such policy limit(s) as Landlord deems reasonably prudent and/or are required by any lender
or ground lessor, which coverage and limits Landlord may, in Landlord’s reasonable discretion, change from time to time.
If, in any calendar year
following the Base Year, as defined hereinbelow (a “Subsequent Year”), a new expense item (e.g., earthquake insurance,
concierge services; entry card systems), is included in Operating Expenses which was not included in the Base Year Operating Expenses,
then the cost of such new item shall be added to the Base Year Operating Expenses for purposes of determining the Additional Rent
payable under this Article 4 for such Subsequent Year. During each Subsequent Year, the same amount shall continue to be included
in the computation of Operating Expenses for the Base Year, resulting in each such Subsequent Year Operating Expenses only including
the increase in the cost of such new item over the Base Year, as so adjusted. However, if in any Subsequent Year thereafter, such
new item is not included in Operating Expenses, no such addition shall be made to Base Year Operating Expenses.
Conversely, as reasonably
determined by Landlord, when an expense item that was originally included in the Base Year Operating Expenses is, in any Subsequent
Year, no longer included in Operating Expenses, then the cost of such item shall be deleted from the Base Year Operating Expenses
for purposes of determining the Additional Rent payable under this Article 4 for such Subsequent Year. The same amount shall continue
to be deleted from the Base Year Operating Expenses for each Subsequent Year thereafter that the item is not included. However,
if such expense item is again included in the Operating Expenses for any Subsequent Year, then the amount of said expense item
originally included in the Base Year Operating Expenses shall again be added back to the Base Year Operating Expenses.
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c)
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Exclusions from Operating Expenses.
Notwithstanding anything contained
in the definition of Operating Expenses as set forth in Subsection 4.1(b) of this Lease, Operating Expenses shall not include the
following:
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Initial
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Initial
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Initial
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i.
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The costs of repairs to the Building, if and to the extent that any such costs is actually reimbursed
by the insurance carried by Landlord or subject to award under any eminent domain proceeding;
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ii.
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Depreciation, amortization and interest payments, except as specifically permitted herein or except
on materials, tools supplies and vendor-type equipment purchased by Landlord to enable Landlord to supply services Landlord might
otherwise contract for with a third party where such depreciation, amortization and interest payments would otherwise have been
included in the charge for such third party’s services. In such a circumstance, the inclusion of all depreciation, amortization
and interest payments shall be determined pursuant to generally accepted accounting principles, consistently applied, amortized
over the reasonably anticipated useful life of the capital item for which such amortization, depreciation or interest allocation
was calculated;
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iii.
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Marketing costs, including leasing commissions, attorneys’ fees incurred in connection with
the negotiation and preparation of letters, deal memos, letters of intent, leases subleases and/or assignments, space planning
costs, and other costs and expenses incurred in connection with lease, sublease and/or assignment negotiations and transactions
with present or prospective tenants or other occupants of the Building;
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iv.
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Expenses for services not offered to Tenant or for which Tenant is charged directly, whether or
not such services or other benefits are provided to another tenant or occupant of the Building;
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v.
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Costs incurred due to Landlord’s or any tenant of the Building’s violation, other than
Tenant, of the terms and conditions of any lease or rental agreement in the Building;
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vi.
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Interest, principal, points and fees on debts or amortization on any mortgage or mortgages or any
other debt instrument encumbering the Building or the land thereunder;
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vii.
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Costs associated with operating the entity which constitutes Landlord, as the same are distinguished
from the costs of operation of the Building, including partnership accounting and legal matters, costs of defending any lawsuits
with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating
any of Landlord’s interest in the Building, costs (including attorneys’ fees and costs of settlement judgments and
payments in lieu thereof) arising from claims, disputes or potential disputes in connection with potential or actual claims, litigation
or arbitration pertaining to Landlord’s ownership of the Building;
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viii.
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Leasing advertising and promotional expenditures, and costs of leasing signs in or on the Building
identifying the owner of the Building, or other tenants signs;
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ix.
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Electric, gas or other power costs for which (and only to the extent) Landlord has been directly
reimbursed by another tenant or occupant of the Building, or for which any tenant directly contracts with the local public service
company;
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x.
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Costs, including attorneys’ fees and settlement judgments and/or payments in lieu thereof,
arising from actual or potential claims, disputes, litigation or arbitration pertaining to Landlord and/or the Building;
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xi.
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Costs incurred with respect to the installation of Tenant’s or other occupant’s improvements
or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for Tenant or other occupants
of the Building;
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xii.
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Tax penalties and interest incurred as a result of Landlord’s negligent or willful failure
to make payments and/or to file any income tax or informational return(s) when due, unless such non-payment is due to Tenant’s
nonpayment of rent;
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xiii.
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Any charitable or political contributions;
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xiv.
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The purchase or rental price of any sculpture, paintings or other object of art (except for costs
associated with any common area fountains), whether or not installed in, on or upon the Building;
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xv.
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Costs of repairs which would have been covered by casualty insurance but for Landlord’s failure
to maintain casualty insurance to cover the replacement value of the Building as required by this Lease;
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xvi.
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Capital expenditures not otherwise permitted hereunder; and
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xvii.
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The assessment or billing of operating expenses that results in Landlord being reimbursed more
than one hundred percent (100%) of the total expenses for the calendar year in question.
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d)
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“Tenant’s Share”
means 0.45%.
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Section 4.2. Calculation of Tenant’s
Share of Increases in Operating Expenses.
If, commencing with the calendar year 2015, the Operating Expenses for any calendar
year during the Term, or portion thereof, (including the last calendar year of the Term), have increased over the Operating Expenses
for the calendar year 2014 (the “Base Year”), then within thirty (30) days after Tenant’s receipt of Landlord’s
computation of such increase (an “Escalation Statement”), Tenant shall pay to Landlord, as Additional Rent, an amount
equal to the product obtained by multiplying such increase by Tenant’s Share.
Landlord may, at or after
the start of any calendar year subsequent to the Base Year, notify Tenant of the amount which Landlord estimates will be Tenant’s
monthly share of any such increase in Operating
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Initial
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Expenses for such calendar year over
the Base Year and the amount thereof shall be added to the Fixed Monthly Rent payments required to be made by Tenant in such year.
If Tenant’s Share of any such increase in rent payable hereunder as shown on the Escalation Statement is greater or less
than the total amounts actually billed to and paid by Tenant during the year covered by such statement, then within thirty (30)
days thereafter, Tenant shall pay in cash any sums owed Landlord or, if applicable, Tenant shall either receive a credit against
any Fixed Monthly Rent and/or Additional Rent next accruing for any sum owed Tenant, or if Landlord’s Escalation Statement
is rendered after the expiration or earlier termination of this Lease and indicates that Tenant’s estimated payments have
exceeded the total amount to which Tenant was obligated, then provided that Landlord is not owed any other sum by Tenant, Landlord
shall issue a cash refund to Tenant within thirty (30) days after Landlord’s completion of such Escalation Statement.
Section 4.3. Tenant’s Payment
of Direct Charges as Additional Rent.
Tenant shall promptly and duly pay all costs and expenses incurred for or in connection
with any Tenant Change (as such term is defined in Section 12.12 of this Lease) or Tenant Service (as such term is defined in Section
8.10 of this Lease), and discharge any mechanic’s or other lien created against the Premises, Building or the Real Property arising
as a result of or in connection with any Tenant Change or Tenant Service as Additional Rent by paying the same, bonding or manner
otherwise provided by law.
Any other cost, expense,
charge, amount or sum (other than Fixed Monthly Rent) payable by Tenant as provided in this Lease shall also be considered Additional
Rent.
Certain individual items
of cost or expense may, in the reasonable determination of Landlord, be separately charged and billed to Tenant by Landlord, either
alone or in conjunction with another party or parties, if they are deemed in good faith by Landlord to apply solely to Tenant and/or
such other party or parties and are not otherwise normally recaptured by Landlord as part of normal operating expenses. Insofar
as is reasonable, Landlord shall attempt to give Tenant prior notice and the opportunity to cure any circumstance that would give
rise to such separate and direct billing.
Said separate billing
shall be paid as Additional Rent, regardless of Tenant’s Share. Such allocations by Landlord shall be binding on Tenant unless
patently unreasonable, and shall be payable within fifteen (15) days after receipt of Landlord’s billing therefor.
ARTICLE 5
ETHICS
Section 5.1. Ethics.
Landlord
and Tenant agree to conduct their business or practice in compliance with any appropriate and applicable codes of professional
or business practice.
ARTICLE 6
USE OF PREMISES
Section 6.1. Use.
The Premises
shall only be used for general office use consistent with the operation of a first-class office building in the Century City area
(the “Specified Use”) and for no other purposes, without Landlord’s prior written consent, which consent shall
be in Landlord’s sole discretion. Any proposed revision of the Specified Use by Tenant shall be for a use consistent with
those customarily found in first-class office buildings. Reasonable grounds for Landlord withholding its consent shall include,
but not be limited to:
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a)
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the proposed use will place a disproportionate burden on the Building systems;
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b)
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the proposed use is for governmental or medical purposes or for a company whose primary business
is that of conducting boiler-room type transactions or sales;
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c)
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the proposed use would generate excessive foot traffic to the Premises and/or Building.
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So long as Tenant is in
control of the Premises, Tenant covenants and agrees that it shall not use, suffer or permit any person(s) to use all or any portion
of the Premises for any purpose in violation of the laws of the United States of America, the State of California, or the ordinances,
regulations or requirements of the City or County of Los Angeles, or other lawful authorities having jurisdiction over the Building.
Tenant shall not do or
permit anything to be done in or about the Premises which will in any way obstruct or unreasonably interfere with the rights of
other tenants or occupants of the Building, or injure or annoy them. Tenant shall not use or allow the Premises to be used for
any pornographic or violent purposes, nor shall Tenant cause, commit, maintain or permit the continuance of any nuisance or waste
in, on or about the Premises. Tenant shall not use the Premises in any manner that in Landlord’s reasonable judgment would
adversely affect or interfere with any services Landlord is required to furnish to Tenant or to any other tenant or occupant of
the Building, or that would interfere with or obstruct the proper and economical rendition of any such service.
Section 6.2. Exclusive Use.
Landlord
represents that Tenant’s Specified Use of the Premises does not conflict with exclusive use provisions granted by Landlord
in other leases for the Building. Landlord further agrees that it shall, in the future, not grant an exclusive use privilege to
any other tenant in the Building that will prevent Tenant from continuing to use the Premises for its Specified Use.
Tenant acknowledges and
agrees that it shall not engage in any of the uses specified hereinbelow, for which Landlord has already granted exclusive rights:
None.
Provided that Tenant has
received written notice of the same from Landlord, and further provided that Landlord does not grant a future exclusive use right
that prohibits Tenant from engaging in the
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Initial
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Initial
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Specified Use, then Tenant agrees that
it shall not violate any exclusive use provision(s) granted by Landlord to other tenants in the Building.
Section 6.3. Rules and Regulations.
Tenant
shall observe and comply with the rules and regulations set forth in Exhibit C, and such other and further reasonable and non-discriminatory
rules and regulations as Landlord may make or adopt and communicate to Tenant in writing at any time or from time to time, when
said rules, in the reasonable judgment of Landlord, may be necessary or desirable to ensure the first-class operation, maintenance,
reputation or appearance of the Building. However, if any conflict arises between the provisions of this Lease and any such rule
or regulation, the provisions of this Lease shall control.
Provided Landlord makes
commercially reasonable efforts to seek compliance by all occupants of the Building with the rules and regulations adopted by Landlord,
Landlord shall not be responsible to Tenant for the failure of any other tenants or occupants of the Building to comply with said
rules and regulations.
ARTICLE 7
CONDITION UPON VACATING & REMOVAL OF
PROPERTY
Section 7.1. Condition upon Vacating.
At
the expiration or earlier termination of this Lease, Tenant shall:
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a)
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terminate its occupancy of, quit and surrender to Landlord, all or such portion of the Premises
upon which this Lease has so terminated, broom-clean and in the same condition as received except for:
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i)
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ordinary wear and tear, or
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ii)
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loss or damage by fire or other casualty; and
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b)
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surrender the Premises free of any and all debris and trash and any of Tenant’s personal
property, furniture, fixtures and equipment that do not otherwise become a part of the Real Property, pursuant to the provisions
contained in Section 7.2 hereinbelow; and
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c)
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at Tenant’s sole expense, forthwith and with all due diligence remove any Tenant Change (as
defined in Section 12.12 of this Lease) and, if requested by Landlord in Landlord’s sole and absolute discretion, restore
the Premises to its original condition, reasonable wear and tear excepted. However, Tenant shall only be obligated to remove said
Tenant Change if (i) the Tenant Change was made without Landlord’s approval; (ii) the Tenant Change is an over standard improvement;
and/or (iii) Landlord notified Tenant of its obligation to do so at the time Landlord approved Tenant’s request for a Tenant
Change. If Tenant fails to complete such removal and/or restoration and/or to repair any damage caused by the removal or restoration
of any Tenant Change, Landlord may do so and may charge the cost thereof to Tenant pursuant to Section 20.26 of this Lease or deduct
the cost from the Security Deposit under Section 3.7 of this Lease. Tenant shall not be obligated to remove the initial Improvements,
except as otherwise provided herein, or any data or telecom cabling installed by or for Tenant in the Premises. In addition, at
the expiration or earlier termination of this Lease, Tenant shall remove any security system or devices installed by Tenant whether
or not the installation was performed as part of the initial Improvements constructed in the Premises or after such time, and Tenant
shall repair any damage caused by such removal.
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Section 7.2. Tenant’s Property.
All
fixtures, equipment, improvements and installations attached or built into the Premises at any time during the Term shall, at the
expiration or earlier termination of this Lease, be deemed the property of Landlord; become a permanent part of the Premises and
remain therein. However, if said equipment, improvements and/or installations can be removed without causing any structural damage
to the Premises, then, provided after such removal Tenant restores the Premises to the condition existing prior to installation
of Tenant’s trade fixtures or equipment, Tenant shall be permitted, at Tenant’s sole expense, to remove said trade
fixtures and equipment.
The provisions of this
Article 7 shall survive the expiration or earlier termination of this Lease.
ARTICLE 8
UTILITIES AND SERVICES
Section 8.1. Normal Building Hours / Holidays.
The “Normal Business Hours” of the Building, during which Landlord shall furnish the services specified in this
Article 8 are defined as 8:00 A.M. to 6:00 P.M., Monday through Friday, and 9:00 A.M. to 1:00 P.M. on Saturday, any one or more
Holiday(s) excepted.
The “Holidays”
which shall be observed by Landlord in the Building are defined as any federally-recognized holiday and any other holiday specified
herein, which are: New Years Day, Presidents’ Day, Memorial Day, the 4th of July, Labor Day, Thanksgiving Day, the day after
Thanksgiving, and Christmas Day (each individually a “Holiday”). Tenant acknowledges that the Building shall be closed
on each and every such Holiday, and Tenant shall not be guaranteed access to Landlord or Landlord’s managing agent(s) on
each such Holiday.
Section 8.2. Access to the Building and
General Services.
Subject to Force Majeure and any power outage(s) which may occur in the Building when the same are out of
Landlord’s reasonable control, Landlord shall furnish the following services to the Premises twenty-four (24) hours per day,
seven days per week:
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a)
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during Normal Business Hours, bulb replacement for building standard lights;
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b)
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access to and use of the parking facilities for persons holding valid parking permits;
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c)
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access to and use of the elevators and Premises;
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Initial
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Initial
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d)
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use of electrical lighting on an as-needed basis within the Premises; and
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e)
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use of a reasonable level of water for kitchen and toilet facilities in the Premises and Common
Area bathrooms.
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Section 8.3. Janitorial Services.
Landlord
shall furnish the Premises with reasonable and customary janitorial services five (5) days per business week, except when the Building
is closed on any Holiday. Landlord shall retain the sole discretion to choose and/or revise the janitorial company providing said
services to the Premises and/or Building.
Section 8.4. Security Services.
Tenant
acknowledges that Landlord currently provides uniformed guard service to the Building from twenty-four (24) hours per day, seven
(7) days per week, solely for the purposes of providing surveillance of, and information and directional assistance to persons
entering the Building.
Tenant acknowledges that
such guard service shall not provide any measure of security or safety to the Building or the Premises, and that Tenant shall take
such actions as it may deem necessary and reasonable to ensure the safety and security of Tenant’s property or person or
the property or persons of Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners
or shareholders. Tenant agrees and acknowledges that, except in the case of the gross negligence or willful misconduct of Landlord
or its directors, employees, officers, partners or shareholders, Landlord shall not be liable to Tenant in any manner whatsoever
arising out of the failure of Landlord’s guard service to secure any person or property from harm.
Tenant agrees and acknowledges
that Landlord, in Landlord’s sole discretion, shall have the option, but not the obligation to add, decrease, revise the
hours of and/or change the level of services being provided by any guard company serving the Building. Tenant further agrees that
Tenant shall not engage or hire any outside guard or security company without Landlord’s prior written consent, which shall
be in Landlord’s sole discretion.
Section 8.5. Utilities.
During Normal
Business Hours Landlord shall furnish a reasonable level of water, heat, ventilation and air conditioning (“HVAC”),
and a sufficient amount of electric current to provide customary business lighting and to operate ordinary office business machines,
such as a single personal computer and ancillary printer per two hundred and fifty (250) usable square feet contained in the Premises,
facsimile machines, small copiers customarily used for general office purposes, and such other equipment and office machines as
do not result in above-standard use of the existing electrical system. So long as the same remain reasonably cost competitive,
Landlord shall retain the sole discretion to choose the utility vendor(s) to supply such services to the Premises and the Building.
Except with the prior
written consent of Landlord, which shall not be unreasonably withheld, conditioned and/or delayed, Tenant shall not install or
use any equipment, apparatus or device in the Premises that requires the installation of a 208 voltage circuit; consumes more than
five (5) kilowatts per hour per item; or the aggregate use of which will in any way increase the connected load to more than 5
Watts per usable square foot, or cause the amount of electricity to be furnished or supplied for use in the Premises to more than
1.2 kWh per usable square foot, per month.
Except with the prior
written consent of Landlord, Tenant shall not connect any electrical equipment to the electrical system of the Building, except
through electrical outlets already existing in the Premises, nor shall Tenant pierce, revise, delete or add to the electrical,
plumbing, mechanical or HVAC systems in the Premises.
Section 8.6. After Hours HVAC and/or Excess
Utility Usage.
If Tenant requires HVAC service during other than Normal Business Hours (“Excess HVAC”), Tenant
shall make its request in writing at least six (6) hours before the close of the normal business day. Otherwise, Landlord shall
have no obligation to provide Excess HVAC. Tenant’s request shall be deemed conclusive evidence of its willingness to pay
the costs specified herein. The current charge for Excess HVAC is $113.00 per hour with a four (4) hour minimum, and shall be subject
to increases during the Term based on increases in Landlord’s cost to provide Excess HVAC.
If Tenant requires electric
current in excess of the amounts specified hereinabove, water or gas in excess of that customarily furnished to the Premises as
office space (“Excess Utility Use”), Tenant shall first procure Landlord’s prior written consent to such Excess
Utility Use, which Landlord may reasonably refuse.
In lieu of Landlord’s
refusal, Landlord may cause a meter or sub-meter to be installed to measure the amount of water, gas and/or electric current consumed
by Tenant in the Premises. The cost of any such meter(s), and the installation, maintenance, and repair thereof, shall be paid
by Tenant as Additional Rent.
After completing installation
of said meter(s), and/or if Tenant requests Excess HVAC, then Tenant shall pay, as Additional Rent, within thirty (30) calendar
days after Tenant’s receipt of Landlord’s billing, for the actual amounts of all water, steam, compressed air, electric
current and/or Excess HVAC consumed beyond the normal levels Landlord is required herein to provide. Said billing shall be calculated
on the usage indicated by such meter(s), sub-meter(s), or Tenant’s written request therefor, and shall be issued by Landlord
at the rates charged for such services by the local public utility furnishing the same, plus any additional expense reasonably incurred
by Landlord in providing said Excess Utility Use and/or in keeping account of the water, steam, compressed air and electric current
so consumed, plus an administrative and billing fee equal to fifteen percent (15%) of the costs so billed.
Section 8.7. Changes Affecting HVAC.
Tenant
shall also pay as Additional Rent for any additional costs Landlord incurs to repair any failure of the HVAC equipment and systems
to perform their function when said failure arises out of or in connection with any change in, or alterations to, the arrangement
of partitioning in the Premises after the Commencement Date, or from occupancy by, on average, more than
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one person for every two
hundred fifty (250) usable square feet of the Premises, or from Tenant’s failure to keep all HVAC vents within the Premises
free of obstruction.
Section 8.8. Damaged or Defective Systems.
Tenant shall give written notice to Landlord after Tenant becomes aware of any alleged damage to, or defective condition in
any part or appurtenance of the Building’s sanitary, electrical, HVAC or other systems serving, located in, or passing through,
the Premises. Provided that the repair or remedy of said damage or defective condition is within the reasonable control of Landlord,
it shall be remedied by Landlord with reasonable diligence. Otherwise, Landlord shall make such commercially reasonable efforts
as may be available to Landlord to effect such remedy or repair, but Landlord shall not be liable to Tenant for any failure thereof,
nor shall Tenant be entitled to claim any damages arising from any such damage or defective condition nor shall Tenant be entitled
to claim any eviction by reason of any such damage or defective condition.
If such damage or defective
condition was caused by, or is attributed to, a Tenant Change or the unreasonable or improper use of such system(s) by Tenant or
its employees, licensees or invitees:
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the cost of the remedy thereof shall be paid by Tenant as Additional Rent pursuant to the provisions
of Section 4.3;
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in no event shall Tenant be entitled to any abatement of rent as specified above; and
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Tenant shall be estopped from making any claim for damages arising out of Landlord’s repair
thereof.
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Section 8.9. Limitation on Landlord’s
Liability for Failure to Provide Utilities and/or Services.
Tenant hereby releases the Landlord Parties from any liability
for damages, by abatement of rent or otherwise, for any failure or delay in furnishing any of the services or utilities specified
in this Article 8 (including, but not limited to telephone and telecommunication services), or for any diminution in the quality
or quantity thereof.
Tenant’s release
of the Landlord Parties’ liability shall be applicable when such failure, delay or diminution is occasioned, in whole or
in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by Landlord’s inability
to secure electricity, gas, water or other fuel at the Building after Landlord’s reasonable effort to do so, by accident
or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause. Such failures, delays or diminution
shall never be deemed to constitute a constructive eviction or disturbance of Tenant’s use and possession of the Premises,
or serve to relieve Tenant from paying Rent or performing any of its obligations under this Lease.
Furthermore, the Landlord
Parties shall not be liable under any circumstances for a loss of, injury to, or interference with, Tenant’s business, including,
without limitation, any loss of profits occurring or arising through or in connection with or incidental to Landlord’s failure
to furnish any of the services or utilities required by this Article 8.
Notwithstanding the above,
Landlord shall use commercially reasonable efforts to remedy any delay, defect or insufficiency in providing the services and or
utilities required hereunder.
Notwithstanding the foregoing,
if Tenant is prevented from using and does not use, the Premises or any portion thereof, as a result of Landlord’s failure
to provide services or utilities as required by this Lease and the restoration of such services or utilities is within Landlord’s
reasonable control (an “Abatement Event”), then Tenant shall give Landlord notice of such Abatement Event and if such
Abatement Event continues for six (6) consecutive business days after Landlord’s receipt of any such Notice (the “Eligibility
Period”), and such failure is not attributable to, or caused by, the acts of Tenant, or a cause beyond Landlord’s reasonable
control, then the Fixed Monthly Rent and Additional Rent shall be abated or reduced, as the case may be, after expiration of the
Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use, the Premises, or a portion
thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does
not use (“Unusable Area”), bears to the total rentable area of the Premises; provided, however, in the event that Tenant
is prevented from using, and does not use, the Unusable Area for a period of time in excess of the Eligibility Period and the remaining
portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein and if Tenant does not conduct
its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is
so prevented from effectively conducting its business therein, the Fixed Monthly Rent and Additional Rent for the entire Premises
shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises. If, however, Tenant
reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion
that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable
by Tenant from the date Tenant reoccupies such portion of the Premises. Such right to abate Fixed Monthly Rent and Additional Rent
shall be Tenant’s sole and exclusive remedy at law or in equity for an Abatement Event.
Section 8.10. Tenant Provided Services.
Tenant shall make no contract or employ any labor in connection with the maintenance, cleaning or other servicing of the physical
structures of the Premises or for installation of any computer, telephone or other cabling, equipment or materials provided in
or to the Premises (collectively and individually a “Tenant Service”) without the prior consent of Landlord, which
consent shall not be unreasonably withheld, conditioned or delayed. Tenant shall not permit the use of any labor, material or equipment
in the performance of any Tenant Service if the use thereof, in Landlord’s reasonable judgment, would violate the provisions
of any agreement between Landlord and any union providing work, labor or services in or about the Premises, Building and/or disturb
labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the
Common Areas. If any violation, disturbance, interference or conflict occurs, Tenant,
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upon demand by Landlord, shall
immediately cause all contractors or subcontractors or all materials causing the violation, disturbance, interference,
difficulty or conflict, to leave or be removed from the Building or the Common Areas immediately. Tenant shall indemnify and
hold Landlord harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses
(including attorneys fees and costs incurred in the defense thereof) to which Landlord may be subject or suffer when the same
arise out of or in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises by
Tenant or Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders, including
any actions relating to the installation, placement, removal or financing of any Tenant Service, improvements, fixtures
and/or equipment in, on, upon or about the Premises.
ARTICLE 9
TENANT’S INDEMNIFICATION AND LIMITATION
ON LANDLORD’S LIABILITY
Section 9.1. Tenant’s Indemnification
and Hold Harmless.
Tenant shall indemnify and hold the Landlord Parties harmless from and against all claims, suits, demands,
damages, judgments, costs, interest and expenses (including attorneys fees and costs incurred in the defense thereof) to which
any the Landlord Parties may be subject or suffer when the same arise out of the negligence or willful misconduct of Tenant or
the negligence or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners
or shareholders in connection with the use of, work in, construction to, or actions in, on, upon or about the Premises, including
any actions relating to the installation, placement, removal or financing of any Tenant Change, improvements, fixtures and/or equipment
in, on, upon or about the Premises.
Tenant’s indemnification
shall extend to any and all claims and occurrences, whether for injury to or death of any person or persons, or for damage to property
(including any loss of use thereof), or otherwise, occurring during the Term or prior to the Commencement Date and to all claims
arising from any condition of the Premises due to or resulting from any default by Tenant in the keeping, observance or performance
of any covenant or provision of this Lease, or from the negligence or willful misconduct of Tenant or the negligence or willful
misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders.
Section 9.2. Nullity of Tenant’s
Indemnification in Event of Negligence.
Notwithstanding anything to the contrary contained in this Lease, Tenant’s indemnification
shall not extend to the negligence or willful misconduct of Landlord or the negligence or willful misconduct of Landlord’s
agents, contractors, directors, employees, officers, partners or shareholders, nor to such events and occurrences for which Landlord
otherwise carries insurance coverage.
Section 9.3. Tenant’s Waiver of Liability.
Provided and to the extent that any injury or damage suffered by Tenant or Tenant’s agents, clients, contractors, directors,
employees, invitees, officers, partners, and/or shareholders did not arise out of the negligence or willful misconduct of any Landlord
Parties, Tenant shall make no claim against Landlord and Landlord shall not be liable or responsible in any way for, and Tenant
hereby waives all claims against Landlord with respect to or arising out of injury or damage to any person or property in or about
the Premises by or from any cause whatsoever.
Section 9.4. Limitation of Landlord’s
Liability.
Tenant expressly agrees that, notwithstanding anything in this Lease and/or any applicable law to the contrary,
the liability of the Landlord Parties, and any recourse by Tenant against Landlord or the Landlord Parties shall be limited solely
and exclusively to Tenant’s actual direct, but not consequential, damages therefor and shall be recoverable only from the
interest of Landlord in the Building.
Tenant specifically agrees
that the Landlord Parties shall have any personal liability therefor. Further, Tenant hereby expressly waives and releases such
personal liability on behalf of itself and all persons claiming by, through or under Tenant.
Section 9.5. Transfer of Landlord’s
Liability.
Tenant expressly agrees that, to the extent that any transferee assumes the obligations of Landlord hereunder in
writing, then the covenants and agreements on the part of Landlord to be performed under this Lease which arise and/or accrue after
the date of such transfer shall not be binding upon Landlord herein named from and after the date of transfer of its interest in
the Building.
Section 9.6. Landlord’s Indemnification.
Notwithstanding any contrary provision of this Lease, Landlord shall indemnify, and hold Tenant and Tenant’s agents,
clients, directors, officers, partners, employees, shareholders and contractors harmless from and against, any and all claims,
causes of action, liabilities, losses, reasonable costs and expenses, including reasonable attorney’s fees and court costs,
arising from or in connection with:
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Any activity occurring, or condition existing, at or in the Building and/or the Real Property (other
than in the Premises) when such activity or condition is under the reasonable control of Landlord, except and to the extent the
same is caused by the negligence or willful misconduct of Tenant or Tenant’s employees, agents, licensee, invitees, or contractors,
or by Tenant’s breach or default in the performance of any obligation under this Lease;
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Any activity occurring, or condition existing in the Premises when and to the extent caused by
the negligence or willful misconduct of Landlord or Landlord’s employees, agents or contractors; or
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Any material breach by Landlord of any of Landlord’s obligations under this Lease that extend
after the expiration of any notice and cure period.
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ARTICLE 10
COMPLIANCE WITH LAWS
Section 10.1. Tenant’s Compliance
with Laws.
Tenant shall not use, permit to be used, or permit anything to be done in or about all or any portion of the Premises
which will in any way violate any laws, statutes, ordinances, rules, orders or regulations duly issued by any governmental authority
having jurisdiction over the Premises, or by the Board of Fire Underwriters (or any successor thereto) (collectively “Codes”).
Section 10.2. Tenant to Comply at Sole Expense.
Tenant shall, at its sole expense, promptly remedy any violation of such Codes. Notwithstanding the foregoing, nothing contained
in this Section 10.2 shall require or permit Tenant to make any structural changes to the Premises, unless such changes are required
due to either Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners
or shareholders use of the Premises for purposes other than general office purposes consistent with a Class A office building,
in which case any such change in use shall be subject to the restrictions specified in Section 6.1 of this Lease.
Section 10.3. Conclusive Evidence of Violation.
The judgment of any court of competent jurisdiction; Tenant’s admission; or the admission of any one or more of Tenant’s
agents, contractors, directors, employees, officers, partners or shareholders in any action against Tenant, whether or not Landlord
is a party thereto, that Tenant has so violated any one or more Codes shall be conclusive evidence of such violation as between
Landlord and Tenant.
ARTICLE 11
ASSIGNMENT AND SUBLETTING
Section 11.1. Permission Required for Assignment
or Sublet.
Unless Landlord’s prior written consent has been given, which consent shall not be unreasonably withheld,
conditioned and/or delayed (subject to the express provisions of this Article 11), this Lease shall not, nor shall any interest
herein, be assignable as to the interest of Tenant by operation of law; nor shall Tenant:
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assign Tenant’s interest in this Lease; or
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sublet the Premises or any part thereof or permit the Premises or any part thereof to be utilized
by anyone other than Tenant, whether as by a concessionaire, franchisee, licensee, permittee or otherwise (collectively, a “sublease”).
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In addition, except for
Transfers under clauses (a) or (b), Tenant shall not mortgage, pledge, encumber or otherwise transfer this Lease, the Term and/or
estate hereby granted or any interest herein without Landlord’s prior written consent, which consent may be granted or withheld
in Landlord’s sole and absolute discretion.
Any assignment, mortgage,
pledge, encumbrance, transfer or sublease (collectively, any “Transfer”) without Landlord’s prior written consent
shall be voidable, and, in Landlord’s sole election, shall constitute a material default under this Lease.
Section 11.2. Voluntary Assignment due to
Changes in Structure of Tenant.
Any dissolution, merger, consolidation, or other reorganization of Tenant, or the single sale
or other transfer of a controlling percentage of the capital stock of Tenant (other than the sale of such stock pursuant to a public
offering that results in a majority of the same members of the Board and executive officers remaining in control of said corporation)
and or the single sale of fifty percent (50%) or more of the value of the assets of Tenant, shall be deemed a voluntary assignment.
The phrase “controlling percentage” means the ownership of, and the right to vote stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of Tenant’s capital stock issued, outstanding, and entitled to
vote for the election of directors. Notwithstanding anything to the contrary contained herein, the preceding paragraph shall not
apply to corporations whose stock is traded through a recognized United States exchange or over the counter.
Any withdrawal or change
(whether voluntary, involuntary, or by operation of law) in the partnership by one or more partners who own, in the aggregate fifty
percent (50%) or more of the partnership, or the dissolution of the partnership, shall be deemed a voluntary assignment.
If Tenant is comprised
of more than one individual, a purported assignment (whether voluntary, involuntary, or by operation of law), by any one of the
persons executing this Lease shall be deemed a voluntary assignment.
Section 11.2.1. Affiliated Companies/Restructuring
of Business Organization.
Any contrary provision of this Article 11 notwithstanding, the assignment by Tenant of all of its
rights under this Lease or the subletting by Tenant of all or any portion of the Premises to (i) a parent or subsidiary of Tenant,
(ii) any person or entity which controls, is controlled by or under common control with Tenant, (iii) any entity which purchases
all or substantially all of the assets or stock of Tenant, (iv) any entity into which Tenant is merged or consolidated, or (v)
any entity which results from the merger or consolidation of entities which control, are controlled by or under common control
with Tenant (all such persons or entities described in (i), (ii), (iii), (iv) and (v) being sometimes hereinafter referred to as
“Affiliates”) shall not be deemed a Transfer under this Article 11 and thus shall not be subject to Landlord’s
prior consent, and Landlord shall not be entitled to any Net Rental Profit resulting therefrom, provided that:
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Any such Affiliate was not formed
as a subterfuge to avoid the obligations of this Article 11;
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Tenant gives Landlord prior notice of any such assignment or sublease to an Affiliate;
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The successor of Tenant and Tenant have as of the effective date of any such assignment
or sublease a tangible net worth, in the aggregate, computed in accordance with generally accepted accounting
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principles (but excluding good will as an asset),
which is sufficient to meet the obligations of Tenant under this Lease;
d)
Any such assignment or
sublease shall be subject and subordinate to all of the terms and provisions of this Lease, and such assignee or sublessee shall
be deemed to have assumed all of the obligations of Tenant under this Lease with respect to that portion of the Premises which
is the subject of such Transfer (other than the amount of Fixed Monthly Rent payable by Tenant with respect to a sublease); and
e)
Tenant and any guarantor
shall remain fully liable for all obligations to be performed by Tenant under this Lease.
Section 11.3. Request to Assign or Sublease.
If at any time during the Term, Tenant wishes to assign this Lease or any interest therein, or to sublet all or any portion
of the Premises, then at least twenty-one (21) days prior to the date when Tenant desires the assignment or sublease to be effective,
Tenant shall give written notice to Landlord setting forth the name, address, and business of the proposed assignee or sublessee,
business and personal credit applications completed on Landlord’s standard application forms, and information (including
references and such financial documentation as Landlord shall reasonably prescribe) concerning the character and financial condition
of the proposed assignee or sublessee, the effective date of the assignment or sublease, and all the material terms and conditions
of the proposed assignment, and with reference solely to a sublease: a detailed description of the space proposed to be sublet,
together with any rights of the proposed sublessee to use Tenant’s improvements and/or ancillary services with the Premises.
Section 11.4. Landlord’s Consent.
Landlord shall have twenty-one (21) days after Tenant’s notice of assignment and/or sublease is received with the financial
information reasonably requested by Landlord to advise Tenant of Landlord’s (i) consent to such proposed assignment or sublease,
(ii) withholding of consent to such proposed assignment or sublease, or (iii) election to terminate this Lease, such termination
to be effective as of the date of the commencement of the proposed assignment or subletting. If Landlord shall exercise its termination
right hereunder, Landlord shall have the right to enter into a lease or other occupancy agreement directly with the proposed assignee
or subtenant, and Tenant shall have no right to any of the rents or other consideration payable by such proposed assignee or subtenant
under such other lease or occupancy agreement, even if such rents and other consideration exceed the rent payable under this Lease
by Tenant. Landlord shall have the right to lease the Premises to any other tenant, or not lease the Premises, in its sole and
absolute discretion. Landlord and Tenant specifically agree that Landlord’s right to terminate this Lease under clause (iii)
above is a material consideration for Landlord’s agreement to enter into this Lease and such right may be exercised in Landlord’s
sole and absolute discretion and no test of reasonableness shall be applicable thereto.
Tenant acknowledges that Landlord’s consent
shall be based upon the criteria listed in Sections 11.4 (a) through (e) below, and subject to Landlord’s right to reasonably
disapprove of any proposed assignment and/or sublease, based on the existence of any condition contained within Section 11.5 hereinbelow.
If Landlord provides its consent within the time period specified, Tenant shall be free to complete the assignment and/or sublet
such space to the party contained in Tenant’s notice, subject to the following conditions:
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The assignment and/or sublease shall be on the same terms as were set forth in the notice given
to Landlord;
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The assignment and/or sublease shall be documented in a written format that is reasonably acceptable
to Landlord, which form shall specifically include the assignee’s and/or sublessee’s acknowledgement and acceptance
of the obligation contained in this Lease, in so far as applicable;
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The assignment and/or sublease shall not be valid, nor shall the assignee or sublessee take possession
of the Premises, or subleased portion thereof, until an executed duplicate original of such sublease and/or assignment has been
delivered to Landlord;
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The assignee and/or sublessee shall have no further right to assign this Lease and/or sublease
the Premises;
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In the event of any Transfer, Landlord shall receive as Additional Rent hereunder (and without
affecting or reducing any other obligation of Tenant under this Lease) fifty percent (50%) of Tenant’s “Net Rental
Profit” derived from such Transfer. If Tenant shall elect to Transfer, Tenant shall use reasonable and good faith efforts
to secure consideration from any such Transferee which would be generally equivalent to then-current market rent, but in no event
shall Tenant’s monetary obligations to Landlord, as set forth in this Lease, be reduced. In the event of a Transfer which
is a sublease, “Net Rental Profit” shall mean all rent, Additional Rent or other consideration actually payable (in
lieu of or in addition to rent) by Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable
by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises
is transferred, after deducting the reasonable expenses incurred by Tenant in connection with such Transfer for (i) advertising
costs, (ii) any improvement allowance or other economic concessions (e.g., space planning allowance and moving expenses) paid by
Tenant in connection with such Transfer, (iii) any brokerage commissions incurred by Tenant in connection with the Transfer, and
(iv) reasonable attorneys’ fees incurred by Tenant in connection with the Transfer. In the event of a Transfer other than
a sublease, “Net Rental Profit” shall mean key money, bonus money or other consideration paid by the Transferee to
Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to the
Transferee for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to the Transferee in connection with
such Transfer, after deducting the reasonable expenses incurred by Tenant in connection with such Transfer, as described in the
preceding sentence. If part of the Net
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Rental Profit shall be payable by
the Transferee other than in cash, then Landlord’s share of such non-cash consideration shall be in such form as is reasonably
satisfactory to Landlord.
Tenant shall deliver to
Landlord a statement within thirty (30) days after the end of each calendar year and/or within thirty (30) days after the expiration
or earlier termination of the Term of this Lease in which any Transfer has occurred, specifying for each such Transfer:
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the date of its execution and delivery, the number of square feet of the Rentable Area demised
thereby, and the Term thereof, and
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a computation in reasonable detail showing the amounts (if any) paid and payable by Tenant to Landlord
pursuant to this Section 11.4 with respect to such Transfer for the period covered by such statement, and the amounts (if any)
paid and payable by Tenant to Landlord pursuant to this Section 11.4 with respect to any payments received from a Transferee during
such period but which relate to an earlier period.
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Section 11.5. Reasonable Grounds for Denial
of Assignment and/or Sublease.
Landlord and Tenant agree that, in addition to such other reasonable grounds as Landlord may
assert for withholding its consent, it shall be reasonable under this Lease and any applicable law for Landlord to withhold its
consent to any proposed Transfer, where any one or more of the following conditions exists:
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The proposed sublessee or assignee (a “Transferee”) is, in Landlord’s reasonable
judgment, of a character or reputation which is not consistent with those businesses customarily found in a Class A office building;
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The Transferee is engaged in a business or intends to use all or any portion of the Premises for
purposes which are not consistent with those generally found in the Building or other Class A office buildings in the vicinity
of the Building, provided, however, that in no event shall Landlord be permitted to decline Tenant’s request for a Transfer
solely on the basis of said Transferee’s intent to change the Specified Use from that of Tenant, unless such proposed change
shall violate any Exclusive Use provision already granted by Landlord;
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The Transferee is either a governmental agency or instrumentality thereof;
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The Transfer will result in more than a reasonable and safe number of occupants within the Premises;
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The Transferee is not a party of reasonable financial worth and/or financial stability in light
of the responsibilities involved under the sublease, if a sublessee, or this Lease, if an assignee, on the date consent is requested,
or has demonstrated a prior history of credit instability or unworthiness;
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The Transfer will cause Landlord to be in violation of another lease or agreement to which Landlord
is a party, or would give another occupant of the Building a right to cancel its lease;
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The Transferee will retain any right originally granted to Tenant to exercise a right of renewal,
right of expansion, right of first offer or other similar right held by Tenant;
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Either(i) the proposed Transferee is a tenant in the Building at the time Tenant requests approval
of the proposed Transfer, or (ii) is actively engaged in on-going written negotiations with Landlord to lease space in the Building
for the three (3) month period immediately preceding the date Tenant requests approval of the proposed Transfer, and Landlord can
make space available in the Building which is comparable to the space that is the subject of the proposed Transfer; or
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The Transferee intends to use all or a portion of the Premises for medical procedures or for a
primary business which is as a boiler-room type sales or marketing organization.
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If Landlord withholds or conditions its consent
and Tenant believes that Landlord did so contrary to the terms of this Lease, Tenant may, as its sole remedy, prosecute an action
for declaratory relief to determine if Landlord properly withheld or conditioned its consent, and Tenant hereby waives all other
remedies, including without limitation those set forth in California Civil Code Section 1995.310.
Section 11.6. Tenant’s Continued
Obligation.
Any consent by Landlord to an assignment of this Lease and/or sublease of the Premises shall not release Tenant
from any of Tenant’s obligations hereunder or be deemed to be a consent by Landlord to any subsequent hypothecation, assignment,
subletting, occupation or use by another person, and Tenant shall remain liable to pay the Rent and/or perform all other obligations
to be performed by Tenant hereunder. Landlord’s acceptance of Rent or Additional Rent from any other person shall not be
deemed to be a waiver by Landlord of any provision of this Lease.
Landlord’s consent to one assignment or subletting
shall not be deemed consent to any subsequent assignment or subletting.
If any assignee or sublessee
of Tenant or any successor of Tenant defaults in the performance of any of the provisions of this Lease, whether or not Landlord
has collected Rent directly from said assignee or sublessee, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such assignee, sublessee or other successor-in-interest.
Provided that in no event
shall any further assignment, sublease, amendment or modification to this Lease serve to either increase Tenant’s liability
or expand Tenant’s duties or obligations hereunder, or relieve Tenant of its liability under this Lease, then Landlord may
consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with any assignee, without
notifying Tenant or any successor of Tenant, and without obtaining their consent thereto.
Section 11.7. Tenant To Pay Landlord’s
Costs.
If Tenant assigns or sublets the Premises or requests the consent of Landlord to any assignment, subletting or other
modification of this Lease, or if Tenant requests the consent of Landlord for any act that Tenant proposes to do, whether or not
Landlord shall grant consent thereto, then Tenant shall, concurrent with Tenant’s submission of any written request therefor,
pay to Landlord (a) the non-refundable sum of $750.00 as reasonable consideration for
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Landlord’s considering and processing
the applicable request, plus (b) the amount of reasonably estimated by Landlord as its anticipated legal fees to be incurred by
Landlord in connection therewith, not to exceed $500.00 except in the event Tenant requests material modifications to Landlord’s
customary consent form documents (provided the same are commercially reasonable), in which case there shall be no limit on attorney
fees incurred as long as such fees are reasonable.
Section 11.8. Successors and Assigns.
Subject
to the provisions contained herein, the covenants and agreements contained in this Lease shall bind and inure to the benefit of
Landlord and Tenant, their respective successors and assigns and all persons claiming by, through or under them.
ARTICLE 12
MAINTENANCE, REPAIRS, DAMAGE, DESTRUCTION,
RENOVATION
AND/OR ALTERATION
Section 12.1. Tenant’s Obligation
to Maintain.
Tenant shall, at Tenant’s sole expense, maintain the Premises in good order and repair, and shall also
keep clean any portion of the Premises which Landlord is not obligated to clean. Such maintenance and repair obligations shall
include the maintenance, cleanout; repair and/or replacement of Tenant’s garbage disposal(s), Instant-Heat or other hot water
producing equipment, if any, and any plumbing fixtures within the Premises (including any dishwashers, water dispensers or ice-makers
and refrigeration devices), and the cleaning and removal of any dishes and/or food prior to the same becoming unsanitary. Tenant
shall be responsible for repair of any leaks or other water migration from any plumbing fixtures located in the Premises, and
shall be liable for any damage caused thereby to any Common Areas or other tenants’ premises. If Tenant becomes obligated
to repair anything within the Premises, Tenant shall advise Landlord’s managing agent of such need, which request shall
be presumed conclusive evidence of Tenant’s obligation and willingness to reimburse Landlord for such repair(s).
Further, Tenant shall
pay the cost of any injury, damage or breakage in, upon or to the Premises created by Tenant’s gross negligence or willful
misconduct or the gross negligence or willful misconduct of Tenant’s agents, clients, contractors, directors, employees,
invitees, licensees, officers, partners or shareholders.
Subject to Tenant’s
obligation for reimbursement to Landlord, as specified herein, Landlord shall make all repairs to the Premises and the exterior
walls, foundation and roof of the Building, the structural portions of the floors of the Building, the systems and equipment of
the Building and the Tenant Improvements installed in the Premises. However, if such repairs, maintenance or cleaning are required
due to Tenant’s gross negligence or willful misconduct or the gross negligence or willful misconduct of Tenant’s agents,
clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders, then, Tenant shall, within
fifteen (15) days after receipt of Landlord’s billing therefor, reimburse Landlord, as Additional Rent, for any expense
of such repairs, cleaning and/or maintenance.
Tenant hereby waives all
right to make repairs at Landlord’s expense under the provisions of Section 1932(1), 1941 and 1942 of the Civil Code of California.
Section 12.2. Repair Period Notice.
Tenant
shall give prompt notice to Landlord of Tenant’s actual knowledge of any damage or destruction to all or any part of the
Premises or Building resulting from or arising out of any fire, earthquake, or other identifiable event of a sudden, unexpected
or unusual nature (individually or collectively a “Casualty”). The time periods specified in this Section 12.2 shall
commence after Landlord receives said written notice from Tenant of the occurrence of a Casualty. After receipt of Tenant’s
written notice that a Casualty has occurred, Landlord shall, within the later of:
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sixty (60) days after the date on which Landlord determines the full extent of the damage caused
by the Casualty, or
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thirty (30) days after Landlord has determined the extent of the insurance proceeds available to
effectuate repairs, but
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in no event more than ninety (90) days after the Casualty,
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provide written notice to Tenant indicating
the anticipated time period for repairing the Casualty (the “Repair Period Notice”). The Repair Period Notice shall
also state, if applicable, Landlord’s election either to repair the Premises, or to terminate this Lease, pursuant to the
provisions of Section 12.3, and if Landlord elects to terminate this Lease, Landlord shall use commercially reasonable efforts
to provide Tenant with a minimum period of ninety (90) days within which to fully vacate the Premises.
Section 12.3. Landlord’s Option to
Terminate or Repair.
Notwithstanding anything to the contrary contained herein, Landlord shall have the option, but not the
obligation to elect not to rebuild or restore the Premises and/or the Building if one or more of the following conditions is present:
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repairs to the Premises cannot reasonably be completed within ninety (90) days after the date of
the Casualty (when such repairs are made without the payment of overtime or other premiums);
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repairs required cannot be made pursuant to the then-existing laws or regulations affecting the
Premises or Building, or the Building cannot be restored except in a substantially different structural or architectural form than
existed before the Casualty;
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the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real
Property and/or the Building shall require that all or such large a portion of the insurance proceeds be used to retire the mortgage
debt, so that the balance of insurance proceeds remaining available to Landlord for completion of repairs shall be insufficient
to repair said damage or destruction;
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the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real
Property and/or the Building shall terminate the mortgage, ground or underlying lease, as the case may be;
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provided Landlord has carried the coverage Landlord is required to obtain under Section 19.1 of
this Lease, the damage is not fully covered, except for deductible amounts, by Landlord’s insurance policies;
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more than thirty-three and one-third percent (33 1/3%) of the Building is damaged or destroyed,
whether or not the Premises is affected, provided that Landlord elects to terminate all other leases for offices of a similar size
in the Building.
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If Landlord elects not to complete repairs
to the Building or Premises, pursuant to this Section 12.3, Landlord’s election to terminate this Lease shall be stated in
the Repair Period Notice, in which event this Lease shall cease and terminate as of the date contained in Landlord’s Repair
Period Notice.
If one hundred percent of the Building is damaged
or destroyed, as certified by an independent building inspector, this Lease shall automatically terminate after Tenant’s
receipt of written notice of such termination from Landlord, and without action beyond the giving of such notice being required
by either Landlord or Tenant.
Upon any termination of this Lease pursuant
to this Section 12.3, Tenant shall pay its prorata share of Fixed Monthly Rent and Additional Rent, properly apportioned up to
the date of such termination, reduced by any abatement of Rent to which Tenant is entitled under Section 12.5; after which both
Landlord and Tenant shall thereafter be freed and discharged of all further obligations under this Lease, except for those obligations
which by their provisions specifically survive the expiration or earlier termination of the Term.
Section 12.4. Tenant’s Option to Terminate.
If:
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the Repair Period Notice provided by Landlord indicates that the anticipated period for repairing
the Casualty exceeds ninety (90) days after the commencement of the repairs (the “Repair Period”), or
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the Casualty to the Premises occurs during the last twelve (12) months of the Term and the anticipated
period for repairing the Casualty exceeds sixty (60) days after the commencement of repairs as such repair period is set forth
in a notice from Landlord to Tenant given within thirty (30) days after the Casualty (the “End of Term Notice”);
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then Tenant shall have the option, but not
the obligation, to terminate this Lease by providing written notice (“Tenant’s Termination Notice”) to Landlord
within thirty (30) days after receiving the Repair Period Notice in the case of 12.4 (a); or within thirty (30) days after receiving
the End of Term Notice, in the case of Section 12.4 (b). Furthermore, if for reasons other than force majeure, Landlord has not
completed the repairs on the date which is thirty (30) days after the expiration of the Repair Period, then Tenant shall also
have the option, but not the obligation, to terminate this Lease by giving Landlord written notice of its intention to so terminate,
which notice shall be given not more than forty-five (45) days after expiration of the Repair Period.
Tenant’s failure
to provide Landlord with Tenant’s Termination Notice within the time periods specified hereinabove shall be deemed conclusive
evidence that Tenant has waived its option to terminate this Lease.
Section 12.5. Temporary Space and/or Rent
Abatement During Repairs or Renovation.
During the Repair Period or during any such period that Landlord completes Work (as
defined hereinbelow) or Renovations (as defined in Section 12.11 hereinbelow), if available, and if requested by Tenant, Landlord
shall make available to Tenant other space in the Building which, in Tenant’s reasonable opinion, is suitable for the temporary
conduct of Tenant’s business. However, if such temporary space is smaller than the Premises, Tenant shall pay Fixed Monthly
Rent and Additional Rent for the temporary space based upon the calculated rate per rentable square foot payable hereunder for
the Premises, times the number of rentable square feet available for Tenant’s use in the temporary space.
If no temporary space
is available that is reasonably satisfactory to Tenant, and any part of the Premises is rendered untenantable by reason of such
Casualty, Work or Renovation; and further provided that the Casualty was not the result of the gross negligence or willful misconduct
of Tenant or the gross negligence and/or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees,
officers, partners or shareholders, then to the extent that all or said portion of the usable area of the Premises is so rendered
untenantable by reason of such Casualty, Work or Renovation, Tenant shall be provided with a proportionate abatement of Fixed Monthly
Rent and Additional Rent. Said proportional abatement shall be based on the usable square footage of the Premises that cannot and
is not actually used by Tenant, divided by the total usable square feet contained in the Premises. That proportional abatement,
if any, shall be provided during the period beginning on the later of:
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the date of the Casualty; or
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the actual date on which Tenant ceases to conduct Tenant’s normal business operations in
all or any portion of the Premises,
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and shall end on the date Landlord achieves
substantial completion of restoration of the Premises. Said abatement of Rent shall be deemed Tenant’s waiver of any claim
or right of claim for any loss or damage asserted by Tenant arising out of the Casualty Repair, Work or Renovation, as the case
may be.
Section 12.6. Tenant’s Waiver of Consequential
Damages.
Subject to Section 12.4, the provisions contained in Section 12.5 are Tenant’s sole remedy arising out of any
Casualty. Landlord shall not be liable to Tenant or any other person or entity for any direct, indirect, or consequential damages
(including
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but not limited to lost profits of Tenant or
loss of or interference with Tenant’s business), due to, arising out of, or as a result of the Casualty.
In no event shall any
Landlord Party be liable for any inconvenience or annoyance to Tenant or Tenant’s agents, clients, contractors, directors,
employees, invitees, licensees, officers, partners or shareholders, or for injury to the business of Tenant resulting in any way
from such Casualty, or from Landlord’s undertaking of repairs as a result of such Casualty.
Section 12.7. Repair Of The Premises When
Casualty Not Caused By Tenant.
If the cost of repair of any Casualty is covered under one or more of the insurance policies
Landlord is required herein to provide, then, provided such Casualty is not a result of Tenant’s negligence or misconduct
or the negligence or misconduct of Tenant’s agents, contractors, directors, employees, licensees, officers, partners or shareholders,
Landlord shall restore the base core and shell of the Premises to its condition prior to the Casualty and repair and/or replace
the improvements previously installed in the Premises.
If Landlord has elected
to complete repairs to the Premises, and has not elected to terminate this Lease, as specified in Section 12.3, then Landlord shall
diligently complete such repairs in a manner so as to minimize unreasonable interference with Tenant’s use of that portion
of the Premises remaining unaffected by the Casualty. Provided Landlord has elected to make the repairs required hereunder, this
Lease shall not be void or voidable during the Repair Period, nor shall Landlord be deemed to have constructively evicted Tenant
thereby.
Section 12.8. Repair of the Premises When
Casualty Caused by Tenant.
If the Casualty to all or any portion of the Premises resulted from the negligence and/or willful
misconduct of Tenant or the negligence and/or willful misconduct of Tenant’s agents, contractors, directors, employees, licensees,
officers, partners or shareholders, Landlord shall not be required to repair any such injury or damage. Landlord shall only repair,
at its expense, damage or destruction to the Building, and Tenant shall pay the cost of repairing the Premises and any deductible
payable by Landlord for repair of the Building. Furthermore, Tenant hereby waives the provisions of California Civil Code Sections
1932(2) and 1933(4) and the provisions of any successor or other law of like import.
Section 12.9. Repair of the Building.
Except
as specified hereinabove, unless Landlord terminates this Lease as permitted hereinabove, Landlord shall use commercially reasonable
efforts to repair the Building, parking structure or other supporting structures and facilities within two hundred and seventy
(270) days after the commencement of repairs to same.
Section 12.10. Government-Required Repairs.
If, during the Term, additional inspections other than those standard annual or biannual inspections to which the Building
may generally be subject; testing, repairs and/or reconstruction (collectively the “Work”) are required by any governmental
authority, or if, upon the recommendation of its engineers, Landlord independently elects to undertake all or any portion of the
Work prior to being required to do so by such governmental authority, Landlord shall give notice thereof to Tenant and shall use
its commercially reasonable efforts not to unreasonably interfere with Tenant’s use of the Premises while completing the
Work. Tenant shall cooperate fully with Landlord in connection with the Work and, upon the prior written request of Landlord, shall
make the Premises available for completion of the Work. Tenant agrees that Landlord shall allocate all costs associated with completion
of the Work to the Building’s Operating Expenses, when permitted to under the provisions of Section 4.1 of this Lease.
If Landlord elects to
undertake the Work during the Term, then Tenant shall be entitled to an abatement of rent, pursuant to the provisions of Section
12.5 hereinabove, and Landlord shall be completely responsible for repair of any damage to the Premises and all costs associated
with the removal, moving and/or storage of Tenant’s furniture, artwork, office equipment and files. Landlord will restore
any and all areas damaged by completion of the Work to their previous quality and pay all cleanup costs. Landlord further agrees
that it shall use commercially reasonable efforts to see that all construction, such as core drilling shall, insofar as is reasonably
possible, be performed between the hours of 7:00 p.m. to 7:00 a.m. Monday through Friday; after 1:00 p.m. on Saturdays and/or at
any time on Sundays.
Tenant shall not have
the right to terminate this Lease as a result of Landlord undertaking the Work, nor shall Tenant or any third party claiming under
Tenant be entitled to make any claim against Landlord for any interruption, interference or disruption of Tenant’s business
or loss of profits therefrom as a result of the Work, and Tenant hereby releases Landlord from any claim which Tenant may have
against Landlord arising from or relating to, directly or indirectly, the performance of the Work by Landlord.
Section 12.11. Optional Landlord Renovation.
It is specifically understood and agreed that Landlord has no obligation to alter, remodel, improve, renovate or decorate the
Premises, Building, or Real Property, or any part thereof and that Landlord has made no representations and/or warranties to Tenant
respecting the condition of the Premises, the Building, or the Real Property including, without limitation, any representation
or warranty regarding any upgrades or other improvements to any Common Areas of the Building or Real Property.
However, at any time and
from time to time during the Term, Landlord may elect, in Landlord’s sole discretion, to otherwise renovate, improve, alter
or modify elements of the Real Property, the Building and/or the Premises (collectively, “Renovations”) including without
limitation, the parking facilities, Common Areas, systems, equipment, roof, and structural portions of the same, which Renovations
may include, without limitation:
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modifying the Common Areas and tenant spaces to comply with applicable laws and regulations, including
regulations relating to the physically disabled, seismic conditions and building safety and security, and
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installing new carpeting, lighting and wall covering in the Building Common Areas.
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In connection with such
Renovations, Landlord may, among other things, erect scaffolding or other necessary structures in or about the Building, limit
or eliminate access to portions of the Building, Common Areas or parking facilities serving the Building, or perform other work
in or about the Building, or the Real Property, which work may create noise, dust or debris that remains in the Building or the
Real Property.
Landlord shall have the
right to access through the Premises as well as the right to take into and upon and through all or any part of the Premises, or
any other part of the Building, all materials that may reasonably be required to make such repairs, alterations, decorating, additions
or improvements pursuant to the provisions of this Section 12.11. So long as Tenant shall maintain reasonable access to the Premises,
the Building and the parking facilities, Landlord shall also have the right, in the course of the Renovations, to close entrances,
doors, corridors, elevators, or other building facilities, or temporarily to abate the operation of such facilities.
So long as Tenant is not
required to vacate the Premises for any reason arising out of the Renovations, and maintains reasonable access to the Premises
and the parking facilities, Tenant shall permit all of the Renovations to be done, without claiming Landlord is guilty of the constructive
eviction or disturbance of Tenant’s use and possession.
Landlord shall not be
liable to Tenant in any manner (except as expressly provided otherwise in this Lease), whether for abatement of any Rent or other
charge, reimbursement of any expense, injury, loss or damage to Tenant’s property, business, or any person claiming by or
under Tenant, by reason of interference with the business of Tenant or inconvenience or annoyance to Tenant or the customers of
Tenant resulting from any Renovations done in or about the Premises or the Building or to any adjacent or nearby building, land,
street or alley. However, Landlord agrees that the Renovations shall be scheduled insofar as is commercially reasonable to permit
Tenant to continue its normal business operations, with advance notice thereof, and in such commercially reasonable manner so as
to minimize Tenant’s inconvenience.
Section 12.12. Optional Tenant Changes During
the Term.
After completion of the initial Improvements contemplated hereunder, if any, Tenant shall make no alteration, change,
addition, removal, demolition, improvement, repair or replacement in, on, upon, to or about the Premises, or at any time to any
portion of the Building (collectively or individually a “Tenant Change”), without the prior written consent of Landlord,
which consent shall be granted or withheld in Landlord’s reasonable discretion. Notwithstanding the foregoing, Tenant shall
have the right, without Landlord’s consent but upon ten (10) days prior notice to Landlord and in compliance with Exhibit
B-1, to make strictly cosmetic, non-structural alterations (such as new paint and carpet and minor changes to millwork) (“Cosmetic
Alterations”) to the Premises that (i) are equal to or better than the minimum Building standards and specifications to the
Premises; (ii) do not affect the exterior appearance of the Building; (iii) do not affect the Building systems and/or the
Building structure; (iv) do not interfere unreasonably with another occupant’s normal and customary business; and (v) do
not require a building permit or any other form of approval whatsoever from any governmental authority. Except as otherwise specified
in Article 7, any Tenant Change shall, at the termination of this Lease, become a part of the Building and belong to Landlord,
pursuant to the provisions of Article 7. Any application for Landlord’s consent to a Tenant Change, and the completion thereof,
shall be in conformance with the provisions of Exhibit B-1, attached hereto and made a part hereof by reference.
Tenant shall not knowingly
permit Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders
to deface the walls, floors and/or ceilings of the Premises, nor mark, drive nails, screws or drill holes into, paint, or in any
way mar any surface in the Building. Notwithstanding the above, Tenant is hereby permitted to install such pictures, certificates,
licenses, artwork, bulletin boards and similar items as are normally used in Tenant’s business, so long as such installation
is carefully attached to the walls by Tenant in a manner reasonably prescribed by Landlord.
If Tenant desires, as
a part of any Tenant Change, to make any revisions whatsoever affecting the electrical, HVAC, mechanical, life-safety, plumbing,
or structural systems of the Building or Premises, such revisions, if approved by Landlord, must be completed by subcontractors
specified by Landlord and in the manner and location(s) reasonably prescribed by Landlord. If Tenant desires to install any telephone
outlets, the same shall be installed in the manner and location(s) reasonably prescribed by Landlord.
If Landlord consents to
any requested Tenant Change, Tenant shall give Landlord a minimum of fifteen (15) days written notice prior to commencement thereof.
Landlord reserves the option, but not the obligation, to enter upon the Premises for the purpose of posting and maintaining such
notices on the Premises as may be reasonably necessary to protect Landlord against mechanic’s liens, material man’s liens
or other liens, and/or for posting any other notices that may be proper and necessary in connection with Tenant’s completion
of the Tenant Change.
If any alterations, additions
or improvements made by Tenant result in Landlord being required to make any alterations to other portions of the Building in order
to comply with any applicable statutes, ordinances or regulations (e.g., “handicap ordinances”) then Tenant shall reimburse
Landlord upon demand for all costs and expenses incurred by Landlord in making such alterations. In addition, Tenant shall reimburse
Landlord for any and all of Landlord’s out of pocket costs incurred in reviewing Tenant’s plans for any Tenant Change
or for any other “peer review” work associated with Landlord’s review of Tenant’s plans for any Tenant
Change, including, without limitation, Landlord’s out of pocket costs incurred in engaging any third party engineers, contractors,
consultants or design specialists. Tenant shall
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pay such costs to Landlord within five (5)
business days after Landlord’s delivery to Tenant of a copy of the invoice(s) for such work.
Section 12.13. Express Agreement.
The
provisions of this Lease, including those contained in this Article 12, constitute an express agreement between Landlord and Tenant
that applies in the event of any Casualty to the Premises, Building or Real Property. Tenant, therefore, fully waives the provisions
of any statute or regulations, including California Civil Code Sections 1932(2) and 1933(4), and any other law or statute which
purports to govern the rights or obligations of Landlord and Tenant concerning a Casualty in the absence of express agreement.
Tenant and Landlord expressly agree and accept that any successor or other law of like import shall have no application hereunder.
ARTICLE 13
CONDEMNATION
Section 13.1. Condemnation of the Premises.
If more than twenty-five percent (25%) of the Premises is lawfully condemned or taken in any manner for any public or quasi-public
use, or if any portion of the Building is condemned or taken in such a manner that Tenant is reasonably prevented from obtaining
access to the Building or the Premises, this Lease may, within ten (10) business days of such taking, be terminated at the option
of either Landlord or Tenant by one party giving the other thirty (30) days written notice of its intent to do so. If either Landlord
or Tenant provide the other party written notice of termination, the Term and estate hereby granted shall forthwith cease and terminate
as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking of possession by the condemning
authority.
If less than twenty-five
percent (25%) of the Premises is so condemned or taken, then the term and estate hereby granted with respect to such part shall
forthwith cease and terminate as of the earlier of the date of vesting of title in such condemnation or taking or the date of taking
of possession by the condemning authority, and the Fixed Monthly Rent payable hereunder (and Additional Rent payable pursuant to
Articles 3 or 4) shall be abated on a prorated basis, by dividing the total number of usable square feet so taken by the total
number of usable square feet contained in the Premises, then multiplying said percentage on a monthly basis, continuing from the
date of such vesting of title to the date specified in this Lease for the expiration of the Term hereof.
Section 13.2. Condemnation of the Building.
If less than twenty-five percent (25%) of the Building is so condemned or taken, then Landlord shall, to the extent of the
proceeds of the condemnation payable to Landlord and with reasonable diligence, restore the remaining portion of the Building as
nearly as practicable to its condition prior to such condemnation or taking; except that, if such proceeds constitute less than
ninety percent (90%) of Landlord’s estimate of the cost of rebuilding or restoration, then Landlord may terminate this Lease
on thirty (30) days’ prior written notice to Tenant.
If more than twenty-five
percent (25%) of the Building is so condemned or taken, but the Premises are unaffected thereby, then Landlord shall have the option
but not the obligation, which election shall be in Landlord’s sole discretion, to terminate this Lease, effective the earlier
of the date of vesting of title in such condemnation or the date Landlord delivers actual possession of the Building and Premises
to the condemning authority, which election by Landlord shall be provided to Tenant in writing.
Section 13.3. Award.
If any condemnation
or taking of all or a part of the Building takes place, Tenant shall be entitled to join in any action claiming compensation therefore,
and Landlord shall be entitled to receive that portion of the award made for the value of the Building, Premises, leasehold improvements
made or reimbursed by Landlord, or bonus value of this Lease, and Tenant shall only be entitled to receive any award made for the
value of the estate vested by this Lease in Tenant, including Tenant’s proximate damages to Tenant’s business and reasonable
relocation expenses. Nothing shall preclude Tenant from intervening in any such condemnation proceeding to claim or receive from
the condemning authority any compensation to which Tenant may otherwise lawfully be entitled in such case in respect of Tenant’s
property or for moving to a new location.
Section 13.4. Condemnation for a Limited
Period.
Notwithstanding the provisions of Section 13.1, 13.2 or 13.3, except during the final twelve (12) months of the Term,
if all or any portion of the Premises are condemned or taken for governmental occupancy for a limited period (i.e., anticipated
to be no longer than sixty (60) days), then this Lease shall not terminate; there shall be no abatement of Fixed Monthly Rent
or Additional Rent payable hereunder; and Tenant shall be entitled to receive the entire award therefor (whether paid as damages,
rent or otherwise).
If, during the final
twelve (12) months of the Term, all or any portion of the Premises are condemned or taken for governmental occupancy for a limited
period anticipated to be in excess of sixty (60) days, or for a period extended after the expiration of the initial Term, Tenant
shall have the option, but not the obligation, to terminate this Lease, in which case, Landlord shall be entitled to such part
of such award as shall be properly allocable to the cost of restoration of the Premises, and the balance of such award shall be
apportioned between Landlord and Tenant as of the date of such termination.
If the termination of
such governmental occupancy is prior to expiration of this Lease, and Tenant has not elected to terminate this Lease, Tenant shall,
upon receipt thereof and to the extent an award has been made, restore the Premises as nearly as possible to the condition in which
they were prior to the condemnation or taking.
ARTICLE 14
MORTGAGE SUBORDINATION; ATTORNMENT AND MODIFICATION
OF LEASE
Section 14.1. Subordination.
This Lease,
the Term and estate hereby granted, are and shall be subject and subordinate to the lien of each mortgage which may now or at
any time hereafter affect Landlord’s
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interest in the real property, Building, parking
facilities, Common Areas or portions thereof and/or the land thereunder (an “underlying mortgage”), regardless of the
interest rate, the terms of repayment, the use of the proceeds or any other provision of any such mortgage. Tenant shall from time
to time execute and deliver such instruments as Landlord or the holder of any such mortgage may reasonably request to confirm the
subordination provided in this Section 14.1.
Section 14.2. Attornment.
Tenant confirms
that if by reason of a default under an underlying mortgage the interest of Landlord in the Premises is terminated, provided Tenant
is granted in writing continued quiet enjoyment of the Premises pursuant to the terms and provisions of this Lease, Tenant shall
attorn to the holder of the reversionary interest in the Premises and shall recognize such holder as Tenant’s landlord under
this Lease, but in no event shall such holder be bound by any payment of Rent paid more than one month in advance of the date due
under this Lease. Tenant shall, within fifteen (15) days after request therefor, execute and deliver, at any time and from time
to time, upon the request of Landlord or of the holder of an underlying mortgage any instrument which may be necessary or appropriate
to evidence such attornment. If Tenant fails to so execute and deliver any such instrument, then Tenant hereby irrevocably appoints
Landlord or such holder as its attorney-in-fact to execute and deliver for and on behalf of Tenant any such instrument.
Section 14.3. Modification of Lease; Notice
of Default.
If any current or prospective mortgagee or ground lessor for the Building requires a modification or modifications
of this Lease, which modification or modifications will not cause an increased cost or expense to Tenant or in any other way materially
and adversely change the rights and obligations of Tenant hereunder, then in such event, Tenant agrees that this Lease may be so
modified. Tenant agrees to execute and deliver to Landlord within fifteen (15) days following the request therefor whatever documents
are required to effectuate said modification. Should Landlord or any such current or prospective mortgagee or ground lessor require
execution of a short form of Lease for recording, containing, among other customary provisions, the names of the parties, a description
of the Premises and the Term, Tenant agrees to execute and deliver to Landlord such short form of Lease within fifteen (15) days
following the request therefor. Further, Tenant shall give written notice of any default by Landlord under this Lease to any mortgagee
and ground lessor of the Building and shall afford such mortgagee and ground lessor a reasonable opportunity to cure such default
prior to exercising any remedy under this Lease.
ARTICLE 15
ESTOPPEL CERTIFICATES
Section 15.1. Estoppel Certificates.
Tenant
shall, within fifteen (15) days after receipt of Landlord’s written request therefor, execute, acknowledge and deliver to
Landlord an Estoppel Certificate, which may be conclusively relied upon by any prospective purchaser, mortgagee or beneficiary
under any deed of trust covering the Building or any part thereof. Said Estoppel Certificate shall certify the following:
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a)
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that this Lease is unmodified and in full force and effect (or, if there have been modifications,
that this Lease is in full force and effect, as modified, and stating the date and nature of each modification);
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b)
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the date, if any, to which rental and other sums payable hereunder have been paid;
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c)
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that no notice has been received by Tenant of any default which has not been cured, except as to
defaults specified in the certificate;
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d)
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that Landlord is not in default under this Lease or, if so, specifying such default; and
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e)
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such other factual matters as may be reasonably requested by Landlord.
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Tenant’s failure
to deliver the Estoppel Certificate within five (5) days following receipt of the Landlord’s second (2nd) written request
therefor shall entitle Landlord and any party relying on such certificate to conclusively presume that the facts contained in such
certificate are true and correct.
ARTICLE 16
NOTICES
Section 16.1. Notices.
Any notice, consent,
approval, agreement, certification, request, bill, demand, statement, acceptance or other communication hereunder (a “notice”)
shall be in writing and shall be considered duly given or furnished when:
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a)
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delivered personally or by messenger or overnight delivery service, with signature evidencing such
delivery;
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b)
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upon the date of delivery, after being mailed in a postpaid envelope, sent certified mail, return
receipt requested, when addressed to Landlord as set forth in the Basic Lease Information and to Tenant at the Premises and any
other address for Tenant specified in the Basic Lease Information; or to such other address or addressee as either party may designate
by a written notice given pursuant hereto; or
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c)
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upon confirmation of good transmission if sent via facsimile machine to such phone number as shall
have been provided in writing by Landlord or Tenant, one to the other.
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If Tenant fails to provide
another valid address, other than the Premises, upon which service to Tenant can be perfected, then Tenant hereby appoints as its
agent to receive the service of all dispossessory or distraint proceedings and notices thereunder the person in charge of or occupying
the Premises at the time, and if no person shall be in charge of or occupy the same, then such service may be made by attaching
the same to the main entrance of the Premises. For the purpose of the service of any notice by Landlord under Article 17 of this
Lease, the notice will be deemed served on the date of mailing by Landlord.
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ARTICLE 17
DEFAULT AND LANDLORD’S OPTION TO CURE
Section 17.1. Tenant’s Default.
For
the purposes of this Section 17.1, if the term “Tenant”, as used in this Lease, refers to more than one person, then,
such term shall be deemed to include all of such persons or any one of them; if any of the obligations of Tenant under this Lease
are guaranteed, the term “Tenant”, as used in Section 17.1(e) and Section 17.1(f), shall be deemed to also include
the guarantor or, if there is more than one guarantor, all
or any one of them; and if this Lease has been assigned, the
term “Tenant”, as used in Sections 17.1 (a) through (h), inclusive, shall be deemed to include the assignee and assignor,
jointly and severally, unless Landlord shall have, in connection with such assignment, previously released the assignor from any
further liability under this Lease, in which event the term “Tenant”, as used in said subparagraphs, shall not include
the assignor that was previously released.
Tenant’s continued
occupancy and quiet enjoyment of the Premises and this Lease and the covenants and estate hereby granted are subject to the limitation
that:
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a)
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if Tenant fails to make any payment of Fixed Monthly Rent or Additional Rent within three (3) business
days after any date upon which the same becomes due; or
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b)
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if Tenant abandons or vacates the Premises; or
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c)
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if Tenant defaults in the keeping, observance or performance of any covenant or agreement set forth
in Sections 6.1, 6.2, or 19.3, and if such default continues and is not cured by Tenant before the expiration of Landlord’s
written 3-Day Notice to Cure or Quit; or
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d)
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if Tenant defaults in the keeping, observance or performance of any covenant or agreement including
any provisions of the rules and regulations established by Landlord (other than a default of the character referred to in Sections
17.1 (a), (b) or (c)), and if such default continues and is not cured by Tenant within thirty (30) days after Landlord has given
to Tenant a notice specifying the same, or, in the case of such a default which for causes beyond Tenant’s reasonable control
(including occupancy of a sublessee) cannot with due diligence be cured within such period of thirty (30) days, if Tenant:
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i)
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does not, promptly upon Tenant’s receipt of such notice, advise Landlord of Tenant’s
intention duly to institute all steps necessary to cure such default; or
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ii)
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does not duly institute and thereafter diligently prosecute to completion all steps (including,
if appropriate, legal proceedings against a defaulting sublessee) necessary to cure the same; or
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e)
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intentionally omitted; or
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i)
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applies for or consents
to the appointment of, or the taking of possession by a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property;
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ii)
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admits in writing its inability, or is generally unable, to pay its debts as such debts become
due;
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iii)
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makes a general assignment for the benefit of its creditors;
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iv)
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commences a voluntary case under federal bankruptcy laws (as now or hereafter in effect);
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v)
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files a petition seeking to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, winding up, or composition or adjustment of debts;
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vi)
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fails to controvert in a timely or appropriate manner, or acquiesces in writing to, any petition
filed against it in an involuntary case under such bankruptcy laws;
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vii)
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takes any action for the purpose of effecting any of the foregoing; or
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g)
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if a proceeding or case is commenced, without the application or consent of Tenant, in any court
of competent jurisdiction, seeking:
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i)
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the liquidation, reorganization, dissolution, winding up, or composition or readjustment of debts,
of Tenant; or
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ii)
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the appointment of a trustee, receiver, custodian, liquidator or the like of Tenant or of all or
a substantial part of its assets; or
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iii)
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similar relief with respect of Tenant under any law relating to bankruptcy, insolvency, reorganization,
winding up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of sixty
(60) days, or an order for relief against Tenant shall be entered in an involuntary case under such bankruptcy laws; or
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h)
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if Tenant fails to take possession
of and move into the Premises within fifteen (15) calendar days after Landlord tenders
the same in writing to Tenant, unless Tenant acknowledges and accepts the Commencement
Date as occurring within such fifteen-day time period, and pays Rent thereon from such
Commencement Date;
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then, in any or each such event, Tenant shall
be deemed to have committed a material default under this Lease.
Section 17.2. Landlord’s Option to
Cure Tenant’s Default.
If
Tenant enters into a default under this Lease, in lieu of Landlord’s issuance
of a written notice, as specified hereinbelow, Landlord may cure the same at the sole expense of Tenant:
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a)
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immediately and without notice in the case of emergency; if said default is specified in
Sections 17.1 (a), (b) or (c), or if such default
unreasonably interferes with the use by any other tenant of the
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Building; with the efficient operation
of the Building; or will result in a violation of law or in a cancellation of any insurance policy maintained by Landlord, and
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b)
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after the expiration of Landlord’s 3-Day Notice of Intent to Cure, in the case of any default
other than those specified in Section 17.2 (a) hereinabove.
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Within fifteen (15) business
days after receiving a statement from Landlord, Tenant shall pay to Landlord the amount of the expense reasonably incurred by Landlord
in performing Tenant’s obligation. If Tenant fails to pay such amount to Landlord within the specified time period, Landlord
may (in addition to any other remedies of Landlord under this Lease or applicable law) deduct the amount due from the Security
Deposit under Section 3.7.
Section 17.3. Landlord’s Option to
Terminate this Lease.
In addition to any other remedies Landlord may have at law or in equity, Landlord shall be entitled to
give to Tenant a written notice of intention to terminate this Lease at the expiration of three (3) days from the date of the giving
of such notice, and if such notice is given by Landlord, and Tenant fails to cure the defaults specified therein, then this Lease
and the Term and estate hereby granted (whether or not the Commencement Date has already occurred) shall terminate upon the expiration
of such three (3) day period (a “Default Termination”), with the same effect as if the last of such three (3) days
were the Termination Date, except that Tenant shall remain liable for damages as provided hereinbelow or pursuant to law.
Section 17.4. Certain Payments.
Bills
for all reasonable costs and expenses incurred by Landlord in connection with any performance by it under Section 17.2
shall
be payable, as Additional Rent, pursuant to the provisions of Section 4.3.
Section 17.5. Certain Waivers.
Unless
Tenant has submitted documentation that it validly disputes Landlord’s billing for Fixed Monthly Rent hereunder, or is completing
an audit of Landlord’s Operating Expense Statement, if Tenant is in default in payment of Fixed Monthly Rent or Additional
Rent hereunder, Tenant waives the right to designate the items against which any payments made by Tenant are to be credited. In
lieu thereof, Landlord may apply any payments received from Tenant to the then-oldest billing remaining unpaid on Tenant’s
rental account or to any other payment due from Tenant, as Landlord sees fit.
Section 17.6. Landlord Default.
Notwithstanding
anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required
to be performed by Landlord pursuant to this Lease unless:
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a)
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in the event such default is with respect to the payment of money, Landlord fails to pay such unpaid
amounts within five (5) business days of written notice from Tenant that the same was not paid when due, or
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b)
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in the event such default is other than the obligation to pay money, Landlord fails to perform
such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to
perform; provided, however, if the nature of Landlord’s obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty
(30) days period and thereafter diligently pursue the same to completion within a reasonable time period.
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Upon any such default
by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any
of its rights provided at law or in equity.
ARTICLE 18
DAMAGES; REMEDIES; RE-ENTRY BY LANDLORD;
ETC.
Section 18.1. Damages.
If Landlord
terminates this Lease, pursuant to the provisions of Section 17.3
(a “Default Termination”), then Landlord
may recover from Tenant the total of:
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a)
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the worth at the time of award of the unpaid Fixed Monthly Rent and Additional Rent earned to the
date of such Default Termination; and
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b)
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the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional
Rent which would have been earned after the date of such Default Termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided; and
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c)
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the worth at the time of award of the amount by which the unpaid Fixed Monthly Rent and Additional
Rent which would have been earned for the balance of the Term after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; and
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d)
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any other amount reasonably necessary to compensate Landlord for all of the detriment proximately
caused by Tenant’s failure to observe or perform any of its covenants and agreements under this Lease or which in the ordinary
course of events would be likely to result therefrom, including, without limitation, the payment of the reasonable expenses incurred
or paid by Landlord in re-entering and securing possession of the Premises and in the reletting thereof (including, without limitation,
altering and preparing the Premises for new tenants and brokers’ commission); and
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e)
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at Landlord’s sole election, such other amounts in addition to or in lieu of the foregoing
as may be permitted from time to time under applicable California laws.
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Section 18.2. Computations:
The “worth
at the time of award” is computed:
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a)
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in paragraphs (a) and (b) above,
by allowing interest at the rate of ten percent (10%)
per annum (but in no event
in excess of the maximum rate permitted by law); and
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b)
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in paragraph (c) above, by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent (1%).
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c)
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For purposes of computing unpaid rental which would have accrued and become payable under this
Lease, unpaid rental shall consist of the sum of:
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i)
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the total Fixed Monthly Rent for the balance of the Term, plus
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ii)
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a computation of Tenant’s Share of Additional Rent due under this Lease including, without
limitation, Tenant’s Share of any increase in Operating Expenses (including real estate taxes) for the balance of the Term.
For purposes of computing any increases due Landlord hereunder, Additional Rent for the calendar year of the default and for each
future calendar year in the Term shall be assumed to be equal to the Additional Rent for the calendar year prior to the year in
which default occurs, compounded at a rate equal to the mean average rate of inflation for the preceding five calendar years as
determined by the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index (All Urban Consumers, all
items, 1982-84 equals 100) for the metropolitan area or region of which Los Angeles, California is a part. If such index is discontinued
or revised, the average rate of inflation shall be determined by reference to the index designated as the successor or substitute
index by the government of the United States.
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Section 18.3. Re-Entry by Landlord.
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a)
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If a Default Termination occurs
or any default specified in Sections 17.1
(a) through (g) occurs and continues
beyond the period of grace (if any) therefor, Landlord or Landlord’s authorized
representatives may re-enter the Premises and remove all persons and all property therefrom,
either by summary dispossession proceedings or by any suitable action or proceeding at
law, without being liable to indictment, prosecution or damages therefor, and may repossess
and enjoy the Premises. No re-entry or repossession of the Premises by Landlord or its
representatives under this Section 18.3 shall be construed as an election to terminate
this Lease unless a notice of such election is given to Tenant or unless the termination
thereof is decreed by a court of competent jurisdiction. The words “re-enter”,
“re-entry” and “re-entering” as used herein are not restricted
to their technical legal meanings.
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b)
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If any default specified in Sections 17.1 (a) through (g) occurs and continues beyond the period
of grace (if any) therefor, then if Landlord does not elect to terminate this Lease Landlord may, from time to time and without
terminating this Lease, enforce all its rights and remedies under this Lease, including the right to recover the Fixed Monthly
Rent and Additional Rent as the same becomes payable by Tenant hereunder.
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i)
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If Landlord consents thereto, Tenant may sublet the Premises or any part thereof (which consent
Landlord agrees will not be unreasonably withheld), subject to Tenant’s compliance with the requirements of Article 11 of
this Lease. So long as Landlord is exercising this remedy it will not terminate Tenant’s right to possession of the Premises,
but it may engage in the acts permitted by Section 1951.4(c) of the California Civil Code.
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c)
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If Tenant abandons the Premises in breach of this Lease, Landlord shall have the right to relet
the Premises or any part thereof on such terms and conditions and at such rentals as Landlord in its sole discretion may deem advisable,
with the right to make alterations and repairs in and to the Premises necessary to reletting. If Landlord so elects to relet, then
gross rentals received by Landlord from the reletting shall be applied:
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i)
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first,
to the payment
of the reasonable expenses incurred or paid by Landlord in re-entering and securing possession
of the Premises and in the reletting thereof (including, without limitation, altering
and preparing the Premises for new tenants and brokers’ commissions);
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ii)
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second,
to the payment of the Fixed Monthly Rent and Additional Rent payable by Tenant hereunder;
and
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iii)
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third,
the remainder, if any, to be retained by Landlord and applied to the payment of future
Fixed Monthly Rent and Additional Rent as the same become due.
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Should the gross rentals received by Landlord
from the reletting be insufficient to pay in full the sums stated in Section 18.3 (a) and (b) hereinabove, Tenant shall, upon demand,
pay the deficiency to Landlord.
Section 18.4. Certain Waivers.
After
Landlord has actually obtained possession of the Premises pursuant to any lawful order of possession granted in a valid court of
law, Tenant thereafter waives and surrenders for Tenant, and for all claiming under Tenant, all rights and privileges now or hereafter
existing to redeem the Premises (whether by order or judgment of any court or by any legal process or writ); to assert Tenant’s
continued right to occupancy of the Premises; or to have a continuance of this Lease for the Term hereof. Tenant also waives the
provisions of any law relating to notice and/or delay in levy of execution in case of an eviction or dispossession for nonpayment
of rent, and of any successor or other law of like import.
Section 18.5. Cumulative Remedies.
The
remedies of Landlord provided for in this Lease are cumulative and are not intended to be exclusive of any other remedies to which
Landlord may be lawfully entitled. The exercise by Landlord of any remedy to which it is entitled shall not preclude or hinder
the exercise of any other such remedy.
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ARTICLE 19
INSURANCE
Section 19.1. Landlord Obligations:
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a)
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Landlord shall secure and maintain during the Term of this Lease the following insurance:
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i)
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Commercial General Liability and Umbrella Liability insurance relating to Landlord’s
operation of the Building, for personal and bodily injury and death, and damage to other’s property.
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ii)
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All risk of standard fire insurance and extended coverage including vandalism
and malicious mischief and sprinkler leakage endorsements relating to the Building, the parking facilities, the Common Area improvements
and any and all improvements installed in, on or upon the Premises and affixed thereto (but excluding Tenant’s fixtures,
furnishings, equipment, personal property or other elements of Tenant’s Property), and provided that the premium cost for
coverage of the Improvements to the Premises in excess of a total value equal to Thirty-Five Dollars ($35.00) per square foot of
Usable Area in the Premises shall be directly reimbursed from Tenant to Landlord, pursuant to the provisions of Section 4.3 of
this Lease;
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iii)
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Such other insurance (including, without limitation, boiler and machinery,
rental loss, earthquake and/or flood insurance) as Landlord reasonably elects to obtain or any Lender requires.
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b)
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Insurance effected by Landlord under this Section 19.1 will be:
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i)
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In amounts which Landlord from time to time determines sufficient or which
any Lender requires; and
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ii)
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Subject to such deductibles and exclusions as Landlord deems appropriate.
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c)
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Notwithstanding any contribution by Tenant to the cost of insurance premiums
as provided herein, Tenant acknowledges that Tenant has no right to receive any proceeds from any insurance policies carried by
Landlord.
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Section 19.2.
Tenant Obligations.
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a)
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At least ten (10) days prior to the earlier of the Commencement Date or Tenant’s
anticipated early access date of the Premises and thereafter during the Term of this Lease, Tenant shall secure and maintain, at
its own expense throughout the Term of this Lease the following minimum types and amounts of insurance, in form and in companies
acceptable to Landlord, insuring Tenant, its employees, agents and designees:
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i)
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Workers’ Compensation Insurance, the amount and scope of which shall
be the amount and scope required by statute or other governing law;
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ii)
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Employer’s
Liability Insurance in amounts equal to the greater of (1)
the insurance currently
maintained by Tenant, or (2) the following: Bodily Injury by accident - $1,000,000 each
accident; Bodily Injury by disease - $1,000,000 policy limit; and Bodily Injury by disease
- $1,000,000 each employee;
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iii)
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Commercial
General Liability and Umbrella Liability Insurance on an occurrence basis, without claims-made
features, with bodily injury and property damage coverage in an amount equal to a combined
single limit of not less than $2,000,000; and such insurance shall include the following
coverages: (A) Premises and Operations coverage with X, C, and U exclusions for explosion,
collapse, and underground property damage deleted under both premises/operations and
contractual liability coverage parts, if applicable; (B) Owner and Contractor Protective
coverage; (C) Products and Completed Operations coverage; (D) Blanket Contractual coverage,
including both oral and written contracts; (E) Personal Injury coverage; (F) Broad Form
Comprehensive General Liability coverage (or its equivalent); and (G) Broad Form Property
Damage coverage, including completed operations;
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iv)
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All risk of standard fire insurance and extended coverage with vandalism and
malicious mischief and sprinkler leakage endorsements, insuring fixtures, glass, equipment, merchandise, inventory and other elements
of Tenant’s Property in and all other contents of the Premises. Such insurance shall be in an amount equal to 100% of the
replacement value thereof (and Tenant shall redetermine the same as frequently as necessary in order to comply herewith). The proceeds
of such insurance, so long as this Lease remains in effect, shall be used to repair and/or replace the items so insured;
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v)
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A commercially reasonable and customary policy of business interruption insurance
with respect to the operation of Tenant’s business; and
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vi)
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Any other forms of insurance Landlord may reasonably require from time to time,
in form and amounts and for insurance risks against which a prudent tenant of comparable size in a comparable business would protect
itself.
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b)
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All insurance policies maintained to provide the coverages required herein shall:
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i)
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Be issued by insurance companies authorized to do business in the state in
which the leased premises are located, and with companies rated, at a minimum “A- VII” by A.M. Best;
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ii)
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Be subject to the prior approval of Landlord (which approval shall not be unreasonably
withheld) as to form, substance and insurer;
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iii)
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Provide for a deductible only so long as Tenant shall remain liable for payment
of any such deductible in the event of any loss;
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iv)
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Contain appropriate cross-liability endorsements denying Tenant’s insurers
the right of subrogation against Landlord as to risks covered by such insurance, without prejudice to any waiver of indemnity provisions
applicable to Tenant and any limitation of liability provisions applicable to Landlord hereunder, of which provisions Tenant shall
notify all insurance carriers;
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v)
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Contain provisions for at least ten (10) days advance written notice to Landlord
of cancellation due to non-payment and thirty (30) days advance written notice to Landlord of material modification or cancellation
for any reason other than non-payment; and
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vi)
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Stipulate that coverages afforded under such policies are primary insurance
as respects Landlord and that any other insurance maintained by Landlord are excess and non-contributing with the insurance required
hereunder.
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c)
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No endorsement limiting or excluding a required coverage is permitted.
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d)
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Tenant shall deliver to Landlord upon execution of this Lease, written evidence
of insurance coverages required herein. Tenant shall deliver to Landlord no less than fifteen (15) days prior to the expiration
of any required coverage, written evidence of the renewal or replacement of such coverage. Landlord’s failure at any time
to object to Tenant’s failure to provide the specified insurance or written evidence thereof (either as to the type or amount
of such insurance) shall not be deemed as a waiver of Tenant’s obligations under this Section.
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Landlord
shall be named as an additional insured on the Tenant’s policies of General Liability
and Umbrella Liability insurance and as a loss payee on the Tenant’s policies of
All Risk insurance as their interest may appear. Tenant shall deliver to Landlord the
appropriate endorsements evidencing additional insured and loss payee status. Any claim
for loss under said insurance policies shall be payable notwithstanding any act, omission,
negligence, representation, misrepresentation or other conduct or misconduct of Tenant
which might otherwise cause cancellation, forfeiture or reduction of such insurance.
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The insurance requirements in this Section shall not in any way limit, in either
scope or amount, the indemnity obligations separately owed by Tenant to Landlord under this Lease.
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Nothing herein shall in any manner limit the liability of Tenant for non-performance
of its obligations or for loss or damage for which Tenant is responsible. The aforementioned minimum limits of policies shall in
no event limit the liability of Tenant hereunder.
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Tenant may, at its option, satisfy its insurance obligations hereunder by policies
of so-called blanket insurance carried by Tenant provided that the same shall, in all respects, comply with the provisions hereof.
In such event, Tenant shall not be deemed to have complied with its obligations hereunder until Tenant shall have obtained and
delivered to Landlord a copy of each such policy together with an appropriate endorsement or certificate applicable to and evidencing
full compliance with the specific requirements of this Lease (irrespective of any claim which may be made with respect to any other
property or liability covered under such policy), and until the same shall have been approved by Landlord in writing.
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Section 19.3. Compliance with
Building Insurance Requirements.
After Tenant takes occupancy of the Premises, Tenant shall not violate or permit in, on or
upon the Premises the violation of any condition imposed by such standard fire insurance policies as are normally issued for office
buildings in the City or County in which the Building is located. Tenant shall not do, suffer or permit anything to be done, or
keep, suffer or permit anything to be kept, in the Premises which would increase the risk ratings or premium calculation factors
on the Building or property therein (collectively an “Increased Risk”), or which would result in insurance companies
of good standing refusing to insure the Building or any property appurtenant thereto in such amounts and against such risks as
Landlord may reasonably determine from time to time are appropriate.
Notwithstanding the above, if additional
insurance is available to cover such Increased Risk, Tenant shall not be in default hereunder if:
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prepays the annual cost thereof to Landlord for such additional coverage, as
well as the additional costs, if any, of any increase in Landlord’s other insurance premiums resulting from the existence
or continuance of such Increased Risk.
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Section 19.4. Mutual Waiver of
Subrogation.
Landlord and Tenant agree to have their respective insurance companies issuing property damage insurance waive
any rights of subrogation that such companies may have against Landlord or Tenant, as the case may be. Anything in this Lease to
the contrary notwithstanding, Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery,
claims, actions or causes of actions against each other, their respective agents, officers and employees, for any loss or damage
that may occur to the Premises, Building or Project, or personal property within the Building, regardless of cause or origin, including
the negligence of Landlord and Tenant and their respective agents, officers, employees and contractors. Each party agrees to give
immediately to its respective insurance company which has issued policies of insurance covering any risk of direct physical loss,
written notice of the terms of the mutual waivers contained in this Section 19.4, and to have such insurance policies properly
endorsed, if necessary, to prevent the invalidation of said insurance coverage by reason of said waivers. If either Landlord or
Tenant fails to provide the insurance policy or policies required hereinabove, the waiver of subrogation contained in this Section
19.4 shall no longer inure to the benefit of the party failing to provide such insurance, and the party claiming against such uninsured
party shall be entitled to restitution of all damages and expenses suffered and/or claimed, without limitation.
Section 19.5. Failure to Secure.
If at any time during the Term, and after expiration of ten (10) business days’ prior written demand therefore from Landlord,
Tenant fails to:
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provide Landlord with access to a registered insurance broker of record that
can verify Tenant’s compliance with the requirement contained in this Article 19; or
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provide documentation reasonably acceptable to Landlord that Tenant has secured and maintained
the insurance coverage required hereunder,
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then such failure shall be considered a
material default under this Lease, and Landlord shall have the option, but not the obligation, without further notice or demand
to obtain such insurance on behalf of or as the agent of Tenant and in Tenant’s name.
Tenant shall pay Landlord’s
billing for the premiums associated with such insurance policy or policies within five (5) days after receipt of Landlord’s
billing, as well as such other reasonable costs and fees arising out of such default, together with interest on the entire amount
so advanced by Landlord, at the rate of ten percent (10%) per annum, computed from the date of such advance. Such advances, if
made by Landlord, shall be construed as and considered Additional Rent under this Lease.
ARTICLE 20
MISCELLANEOUS
Section 20.1. Entire Agreement.
This
Lease, including the exhibits and guaranty of lease, if any, annexed hereto, contains all of the agreements and understandings
relating to the leasing of the Premises and the obligations of Landlord and Tenant in connection therewith and neither party and
no agent or representative thereof has made or is making, and neither party in executing and delivering this Lease is relying upon,
any warranties or representations, except to the extent set forth in this Lease. All understandings and agreements heretofore had
between Landlord and Tenant relating to the leasing of the Premises are merged in this Lease, which alone fully and completely
expresses their agreement. The Riders (if any) and Exhibits annexed to this Lease and the Construction Agreement are hereby incorporated
herein and made a part hereof.
Section 20.2. No Waiver or Modification.
The failure of Landlord or Tenant to insist in any instance upon the strict keeping, observance or performance of any covenant
or agreement contained in this Lease or to exercise any election herein contained shall not be construed as a waiver or relinquishment
for the future of such covenant or agreement, but the same shall continue and remain in full force and effect. No waiver or modification
by either Landlord or Tenant of any covenant or agreement contained in this Lease shall be deemed to have been made unless the
same is in writing executed by the party whose rights are being waived or modified. No surrender of possession of any part of the
Premises shall release Tenant from any of its obligations hereunder unless accepted in writing by Landlord. The receipt and retention
by Landlord, and the payment by Tenant, of Fixed Monthly Rent or Additional Rent with knowledge of the breach of any covenant or
agreement contained in this Lease shall not be deemed a waiver of such breach by either Landlord or Tenant.
Section 20.3. Time of the Essence.
Time
is of the essence of this Lease and of all provisions hereof, except in respect to the delivery of possession of the Premises at
the Commencement Date.
Section 20.4. Force Majeure.
For
the purposes of this Lease, “Force Majeure” shall be defined as any or all prevention, delays or
stoppages
and/or the inability to obtain services, labor, materials or reasonable substitutes therefor, when such prevention, delay, stoppage
or failure is due to strikes, lockouts, labor disputes, terrorist acts, acts of God, governmental actions, civil commotion, fire
or other casualty, and/or other causes beyond the reasonable control of the party obligated to perform, except that Force Majeure
may not be raised as a defense for Tenant’s non-performance of any obligations imposed by this Lease with regard to the
payment of Fixed Monthly Rent and/or Additional Rent.
Notwithstanding anything
to the contrary contained in this Lease, Force Majeure shall excuse the performance of such party for a period equal to any such
prevention, delay, stoppage or inability. Therefore, if this Lease specifies a time period for performance of an obligation by
either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force
Majeure.
Section 20.5. Broker.
Landlord and
Tenant represent to one another that each has dealt with no broker or agent in connection with this Lease or its negotiations other
than
Douglas Emmett Management, LLC
and
Held Properties, Inc.
Landlord and Tenant shall hold one another harmless
from and against any and all liability, loss, damage, expense, claim, action, demand, suit or obligation arising out of or relating
to a breach by the indemnifying party of such representation. Landlord agrees to pay all commissions due to the brokers listed
above created by Tenant’s execution of this Lease.
Section 20.6. Governing Law.
This
Lease shall be governed by and construed in accordance with the laws of the State of California.
Section 20.7. Submission of Lease.
Whether or
not rental deposits have been received by Landlord from Tenant, and whether or not Landlord has delivered
to Tenant an unexecuted draft version of this Lease for Tenant’s review and/or signature, no contractual or other rights
shall exist between Landlord and Tenant with respect to the Premises, nor shall this Lease be valid and/or in effect until this
Lease has been fully executed and a duplicate original of said fully-executed Lease has been delivered to both Landlord and Tenant.
The submission of this
Lease to Tenant shall be for examination purposes only, and does not and shall not constitute a reservation of or an option for
Tenant to lease, or otherwise create any interest by Tenant in the Premises or any other offices or space situated in the Building.
Execution of this Lease by Tenant and its return to Landlord shall not be binding upon Landlord, notwithstanding any time interval,
until Landlord has in fact executed and delivered a fully-executed duplicate original of this Lease to Tenant. Landlord and Tenant
agree hereby to authorize transmission of all or portions of documents, including signature lines thereon, by facsimile machines,
and further authorize the other party to rely conclusively upon such facsimile transmissions as if the original had been received.
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Section 20.8. Captions.
The
captions in this Lease are for convenience only and shall not in any way limit or be deemed to construe or interpret the terms
and provisions hereof.
Section 20.9. Singular and Plural,
Etc.
The words “Landlord” and “Tenant”, as used herein, shall include the plural as well as the singular.
Words used in the masculine gender include the feminine and neuter. If there be more than one Landlord or Tenant the obligations
hereunder imposed upon Landlord and Tenant shall be joint and several.
Section 20.10. Independent Covenants.
Except where the covenants contained in one Article of this Lease are clearly affected by or contingent upon fulfillment by
either party of another Article or paragraph of this Lease, this Lease shall be construed as though the covenants herein between
Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary
and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs
or perform any actions hereunder at Landlord’s expense or to any set-off of the Rent or other amounts owing hereunder against
Landlord; provided, however, that the foregoing shall in no way impair the right of Tenant to commence a separate action against
Landlord for the violation by Landlord of the provisions hereof so long as notice is first given to Landlord and any holder of
a mortgage or deed of trust covering the Building, Real Property or any portion thereof, of whose address Tenant has theretofore
been notified, and an opportunity is granted to Landlord and such holder to correct such violations as provided above.
Section 20.11. Severability.
If
any covenant or agreement of this Lease or the application thereof to any person or circumstance shall be held to be invalid or
unenforceable, then and in each such event the remainder of this Lease or the application of such covenant or agreement to any
other person or any other circumstance shall not be thereby affected, and each covenant and agreement hereof shall remain valid
and enforceable to the fullest extent permitted by law.
Section 20.12. Warranty of Authority.
If Landlord or Tenant signs as a corporation, limited liability company or a partnership, each of the persons executing this
Lease on behalf of Landlord or Tenant hereby covenant and warrant that each is a duly authorized and existing entity, that each
has and is qualified to do business in California, that the persons signing on behalf of Landlord or Tenant have full right and
authority to enter into this Lease, and that each and every person signing on behalf of either Landlord or Tenant are authorized
to do so.
Section 20.13. No Representations
or Warranties.
Neither Landlord nor Landlord’s agents or attorneys have made any representations or warranties with respect
to the Premises, the Building or this Lease, except as expressly set forth herein, and no rights, easements or licenses are or
shall be acquired by Tenant by implication or otherwise.
Section 20.14. No Joint Venture
or Partnership.
This Lease shall not be deemed or construed to create or establish any relationship of partnership or joint
venture or similar relationship or arrangement between Landlord and Tenant hereunder.
Section 20.15. Tenant’s
Obligations At Its Sole Expense.
Notwithstanding the fact that certain references in this Lease to acts required to be performed
by Tenant hereunder, or to breaches or defaults of this Lease by Tenant, omit to state that such acts shall be performed at Tenant’s
sole expense, or omit to state that such breaches or defaults by Tenant are material, unless the context clearly implies to the
contrary each and every act to be performed or obligation to be fulfilled by Tenant pursuant to this Lease shall be performed or
fulfilled at Tenant’s sole expense, and all breaches or defaults by Tenant hereunder shall be deemed material.
Section 20.16. Attorneys’ Fees.
If litigation is instituted between Landlord and Tenant, the cause for which arises out of or in relation to this Lease, the
prevailing party in such litigation shall be entitled to receive its costs (not limited to court costs), expenses and reasonable
attorneys’ fees from the non-prevailing party as the same may be awarded by the court.
Section 20.17. Waiver of Trial
by Jury. In the interest of saving time and expense, Landlord and Tenant hereby consent to trial without a jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the other or their successor-in-interest in respect
to any matters arising out of or relating to this Lease.
Section 20.18. No Merger.
The
voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an
assignment to it of any or all such subleases or subtenancies.
Section 20.19. Prohibition Against
Recording.
Except as provided in Section 14.3 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing
with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant, and the recording
thereof in violation of this provision shall make this Lease null and void at Landlord’s election.
Section 20.20. Hazardous Waste.
Tenant specifically agrees that, except for such limited quantities of office materials and supplies as are customarily used
in Tenant’s normal business operations, Tenant shall not engage or permit at any time, any operations or activities upon,
or any use or occupancy of the Premises, or any portion thereof, for the purpose of or in any way involving the handling, manufacturing,
treatment, storage, use, transportation, spillage, leakage, dumping, discharge or disposal (whether legal or illegal, accidental
or intentional) of any hazardous substances, materials or wastes, or any wastes regulated under any local, state or federal law.
Tenant shall,
during the Term, remain in full compliance with all applicable laws governing its use and occupancy of the Premises, including,
without limitation, the handling, manufacturing, treatment, storage, disposal, discharge, use, and transportation of hazardous
substances, materials or wastes, and any wastes
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regulated under any local, state
or federal law. Tenant will remain in full compliance with the terms and conditions of all permits and licenses issued to it by
any governmental authority on account of any or all of its activities on the Premises. Tenant shall comply with any operations
and maintenance program for the Real Property.
Section 20.21. Transportation Management.
Tenant shall, at Tenant’s sole expense, fully comply with all present or future programs intended to manage parking,
transportation or traffic in and around the Building, when the same have been mandated by an outside governmental authority having
jurisdiction therefor and not when required for the convenience of Landlord.
In connection therewith,
Tenant shall be responsible for the transportation planning and management for all of Tenant’s employees while located at
the Premises, by working directly with Landlord, any governmental transportation management organization or any other transportation-related
committees or entities reasonably designated by Landlord. Such programs may include, without limitation:
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restrictions on the number of peak-hour vehicle trips generated by Tenant;
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requirements for increased vehicle occupancy;
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implementing an in-house ride-sharing program and/or appointing an employee transportation coordinator;
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working with employees of any Building (or area-wide) ridesharing program manager;
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instituting employer-sponsored incentives (financial or in-kind) to encourage employees to ridesharing; and
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utilizing flexible work shifts for employees.
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Section 20.22. Signage.
Tenant may
not install, inscribe, paint or affix any awning, shade, sign, advertisement or notice on or to any part of the outside or inside
of the Building, or in any portion of the Premises visible to the outside of the Building or Common Areas without Landlord’s
prior written consent, which consent may be granted or withheld in Landlord’s sole and absolute discretion.
All signage and/or directory
listings installed on behalf of Tenant, whether installed in, on or upon the public corridors, doorways, Building directory and/or
parking directory (if any), or in any other location whatsoever visible outside of the Premises, shall be installed by Landlord,
at Tenant’s sole expense.
Tenant’s identification
on or in any Common Area of the Building shall be limited to Tenant’s name and suite designation, and in no event shall Tenant
be entitled to the installation of Tenant’s logo in any portion of the Building or Common Areas. Furthermore, the size, style,
and placement of letters to be used in any of Tenant’s signage shall be determined by Landlord, in Landlord’s sole
discretion, in full conformance with the previously established signage program for the Building.
Except as specified
hereinbelow, Tenant shall only be entitled to one (1) listing on the Building directory, or any parking directory ancillary thereto,
which shall only show Tenant’s business name and suite designation. Tenant shall also be entitled to a maximum of one (1)
additional listing on said Building and/or parking directory, which listings shall be limited solely to Tenant’s officers,
employees, subsidiaries, affiliates and/or sublessees, if any. All of said listings shall be subject to Landlord’s prior
written approval, which shall not be unreasonably withheld, conditioned or delayed.
Section 20.23. Asbestos Notification.
Tenant acknowledges that it has received and reviewed
Exhibit F
attached hereto and incorporated herein.
Section 20.24. Confidentiality.
Landlord
and Tenant agree that the covenants and provisions of this Lease shall not be divulged to anyone not directly involved in the management,
administration, ownership, lending against, or subleasing of the Premises, which permitted disclosure shall include, but not be
limited to, the board members, legal counsel and/or accountants of either Landlord or Tenant.
Section 20.25. Intentionally Omitted.
Section 20.26. Landlord’s Right
to Perform Tenant’s Obligations.
All obligations to be performed by Tenant under this Lease shall be performed by Tenant
at Tenant’s expense (unless this Lease expressly provides otherwise) without any reduction of or offset against Rent. Except
to the extent set forth in Section 17.2 herein, in the event of a default by Tenant of any obligation under this Lease, Landlord
may, after delivering notice to Tenant and allowing Tenant ten (10) business days to cure such default, perform the obligation
on Tenant’s behalf, without waiving any of Landlord’s rights, remedies, claims or defenses with respect to Tenant’s
failure to perform
any obligations and without releasing Tenant from
such obligations. If Landlord determines that
such default reasonably requires additional time for cure, then Landlord’s notice may state such other
time period,
provided that Tenant commences its cure within ten (10) business days after notice and thereafter continuously prosecutes such
cure to completion. Within fifteen (15) business days after receiving a statement from Landlord, Tenant shall pay to Landlord
the amount of the expense reasonably incurred by Landlord in performing Tenant’s obligation. If Tenant fails to pay such
amount to Landlord within the specified time period, Landlord may (in addition to any other remedies of Landlord under this Lease
or applicable law) deduct the amount due from the Security Deposit
under Section 3.7. The terms of this Section 20.26 shall
survive the expiration or earlier termination of
this Lease.
ARTICLE 21
PARKING
Section 21.1. Parking.
Throughout
the Term, Tenant shall have the right but not the obligation to purchase and assign to its employees up to three (3) unreserved
parking permits and two (2) valet assist permits as set forth in Section 21.1 of the Basic Lease Information (“BLI”).
Except as otherwise
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permitted by Landlord’s management
agent in its reasonable discretion, and based on the availability thereof, in no event shall Tenant be entitled to purchase more
than the number of parking permits listed in the BLI. If additional parking permits are available on a month-to-month basis, which
determination shall be in the sole discretion of Landlord’s parking agent, Tenant shall be permitted to purchase one or more
of said permits on a first-come, first-served basis.
Said parking permits
shall allow Tenant to park in the Building parking facility at the posted monthly parking rates and charges then in effect, plus
any and all applicable taxes, provided that such rates may be changed from time to time, in Landlord’s sole discretion. Landlord
shall retain sole discretion to designate the location of each parking space, and whether it shall be assigned, or unassigned,
unless specifically agreed to otherwise in writing between Landlord and Tenant.
Guests and invitees
of Tenant shall have the right to use, in common with guests and invitees of other tenants of the Building, the transient parking
facilities of the Building at the then-posted parking rates and charges, or at such other rate or rates and charges as may be agreed
upon from time to time between Landlord and Tenant in writing. Such rate(s) or charges may be changed by Landlord from time to
time in Landlord’s sole discretion, and shall include, without limitation, any and all fees or taxes relating to parking
assessed to Landlord for such parking facilities.
Tenant or Tenant’s
agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders continued use of said
transient, as well as monthly parking, shall be contingent upon Tenant and Tenant’s agents, clients, contractors, directors,
employees, invitees, licensees, officers, partners or shareholders continued compliance with the reasonable and non-discriminatory
rules and regulations adopted by Landlord, which rules and regulations may change at any time or from time to time during the Term
hereof in Landlord’s sole discretion.
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ORIGINAL
IN WITNESS WHEREOF,
Landlord and
Tenant have duly executed this Lease, effective the later of the date(s) written below.
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1997, LLC, a Delaware
limited liability company
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RITTER PHARMACEUTICALS, INC., a
Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Andrew Ritter
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a Delaware corporation, its Manager
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Name:
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Andrew Ritter
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By:
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/s/ Michael J. Means
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Michael J. Means,
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Senior Vice President
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Dated:
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6/26/13
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EXHIBIT A - PREMISES PLAN
Suite 1820 at 1801 Century Park East, Los
Angeles, California 90067
Rentable Area: approximately 1,712 square
feet
Usable Area: approximately 1,450 square feet
(Measured pursuant to the provisions of Section
1.4 of the Lease)
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EXHIBIT B
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EXHIBIT B-1
CONSTRUCTION BY TENANT DURING
TERM
1.
If
Tenant wishes to make a Tenant Change, as specified in Section 12.12 of the Lease, such Tenant Change shall be completed pursuant
to the provisions of Section 12.12 of the Lease and this Exhibit B-1. Tenant shall bear all costs of said Tenant Change, which
shall be paid directly to Tenant’s general contractor (“Contractor”).
2.
Contractor
shall complete construction to the Premises pursuant to the final Plans and Specifications approved in writing by Landlord and
Tenant (the “Tenant Change”), in compliance with all applicable codes and regulations. Tenant’s selections of
finishes and materials shall be indicated on the Plans and Specifications, and shall be equal to or better than the minimum Building
standards and specifications. All work not shown on the final Plans and Specifications, but which is to be included in the Tenant
Change, including but not limited to, telephone service installation, furnishings or cabinetry, shall be installed pursuant to
Landlord’s reasonable directives.
3.
Prior
to commencing any work:
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Tenant’s proposed Contractor and the Contractor’s proposed subcontractors
and suppliers shall be approved in writing by Landlord, which approval shall not be unreasonably withheld, conditioned or delayed.
As a condition of such approval, so long as the same are reasonably cost competitive, then Contractor shall use Landlord’s
Heating, Venting, and Air-conditioning, plumbing, and electrical subcontractors for such work.
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During completion of any Tenant Change, neither Tenant or Contractor shall permit
any subcontractors, workmen, laborers, material or equipment to come into or upon the Building if the use thereof, in Landlord’s
reasonable judgment, would violate Landlord’s agreement with any union providing work, labor or services in or about the
Building or disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about
the Building or the Common Areas. If any violation, disturbance, interference or conflict occurs, Tenant, upon demand by Landlord,
shall immediately cause all contractors or subcontractors or all materials causing the violation, disturbance, interference, difficulty
or conflict, to leave or be removed from the Building or the Common Areas immediately. Tenant shall indemnify and hold Landlord
harmless from and against all claims, suits, demands, damages, judgments, costs, interest and expenses (including attorneys fees
and costs incurred in the defense thereof) to which Landlord may be subject or suffer when the same arise out of or in connection
with the use of, work in, construction to, or actions in, on, upon or about the Premises by Tenant or Tenant’s agents, contractors,
directors, employees, licensees, officers, partners or shareholders, including any actions relating to the installation, placement,
removal or financing of any Tenant Change, improvements, fixtures and/or equipment in, on, upon or about the Premises.
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Contractor shall submit to Landlord and Tenant a written bid for completion
of the Tenant Change. Said bid shall include Contractor’s overhead, profit, and fees, and, if the proposed Tenant Change is for
cosmetic work in excess of $5,000 in aggregate value per occurrence or for structural work of any kind, Contractor shall:
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pre-pay to Landlord’s managing agent $250.00 as partial payment of said
managing agent’s construction administration fee, as specified hereinbelow, and
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upon completion of said Tenant Change, pay an administration fee for supervision
of said Tenant Change equal to seven and one-half percent (7.5%) of the total cost of the Tenant Change, to defray said agent’s
costs for supervision of the construction.
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4.
Tenant
or Contractor shall submit all Plans and Specifications to Landlord, and
no work on the Premises shall be commenced before Tenant has received Landlord’s final written
approval thereof, which shall not be unreasonably withheld, delayed or conditioned. In addition, Tenant shall reimburse Landlord
for any and all of Landlord’s out of pocket costs incurred in reviewing Tenant’s plans for any Tenant Change or for
any other “peer review” work associated with Landlord’s review of Tenant’s plans for any Tenant Change,
including, without limitation, Landlord’s out of pocket costs incurred in engaging any third party engineers, contractors,
consultants or design specialists. Tenant shall pay such costs to Landlord within five (5) business days after Landlord’s
delivery to Tenant of a copy of the invoice(s) for such work.
5.
Contractor
shall complete all architectural and planning review and obtain all permits, including signage, required by the city, state or
county in which the Premises are located.
6.
Contractor
shall submit to Landlord verification of public liability and worker’s compensation insurance adequate to fully protect Landlord
and Tenant from and against any and all liability for death or injury to persons or damage to property caused in or about or by
reason of the construction of any work done by Contractor or Contractor’s subcontractors or suppliers.
7.
Unless
otherwise waived in writing by Landlord, which waiver shall be in Landlord’s sole discretion, Contractor shall provide payment
and performance bonds in an amount equal to 100% of the estimated amount of Tenant Change, as specified to Landlord pursuant to
Paragraph 2.
8.
Contractor
and Contractor’s subcontractors and suppliers shall be subject to Landlord’s reasonable administrative control and
supervision. Landlord shall provide Contractor and Contractor’s subcontractors and suppliers with reasonable access to the
Premises.
9.
During
construction of the Tenant Change, Contractor shall adhere to the procedures contained hereinbelow, which represent Landlord’s
minimum requirements for completion of the Tenant Change.
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EXHIBIT B-1
CONSTRUCTION BY TENANT DURING TERM (cont’d)
10.
Upon completion of
the Tenant Change, Tenant shall provide Landlord with such evidence as Landlord may reasonably request that the Contractor has
been paid in full, and Contractor shall provide Landlord with lien releases as requested by Landlord, confirmation that no liens
have been filed against the Premises or the Building. If any liens arise against the Premises or the Building as a result of the
Tenant Change, Tenant shall immediately, at Tenant’s sole expense, remove such liens and provide Landlord evidence that the
title to the Building and Premises have been cleared of such liens.
11.
Whether or not Tenant
or Contractor timely complete the Tenant Change, unless the Lease is otherwise terminated pursuant to the provisions contained
therein, Tenant acknowledges and agrees that Tenant’s obligations under the Lease to pay Fixed Monthly Rent and/or Additional
Rent shall continue unabated.
CONSTRUCTION POLICY
The following
policies outlined are the construction procedures for the Building. As a material consideration to Landlord for granting Landlord’s
permission to Tenant to complete the construction contemplated hereunder, Tenant agrees to be bound by and follow the provisions
contained hereinbelow:
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a)
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Contractors to notify the management office for the Building prior to starting
any work. All jobs must be scheduled by the general contractor or sub-contractor when no general contractor is being used.
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b)
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The general contractor is to provide the Building Manager with a copy of the
projected work schedule for the suite, prior to the start of construction.
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c)
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Contractor will make sure that at least one set of drawings will have the Building
Manager’s initials approving the plans and a copy delivered to the Building Office.
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d)
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As-built construction, including mechanical drawings and air balancing reports
will be submitted at the end of each project.
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e)
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The HVAC contractor is to provide the following items to the Building Manager
upon being awarded the contract from the general contractor:
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i)
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A plan showing the new ducting layout, all supply and return air grille locations and all thermostat
locations. The plan sheet should also include the location of any fire dampers.
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ii)
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An Air Balance Report reflecting the supply air capacity throughout the suite, which is to be given
to the Chief Building Engineer at the finish of the HVAC installation.
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f)
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All paint bids should reflect a one-time touch-up paint on all suites. This
is to be completed approximately five (5) days after move-in date.
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g)
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The general contractor must provide for the removal of all trash and debris
arising during the course of construction. At no time are the building’s trash compactors and/or dumpsters to be used by the general
contractor’s clean-up crews for the disposal of any trash or debris accumulated during construction. The Building Office assumes
no responsibility for bins. Contractor is to monitor and resolve any problems with bin usage without involving the Building Office.
Bins are to be emptied on a regular basis and never allowed to overflow. Trash is to be placed in the bin.
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h)
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Contractors will include in their proposals all costs to include: parking,
elevator service, additional security (if required), restoration of carpets, etc. Parking will be validated only if contractor
is working directly for the Building Office.
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i)
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Any problems with construction per the plan, will be brought to the attention
of and documented to the Building Manager. Any changes that need additional work not described in the bid will be approved in writing
by the Building Manager. All contractors doing work on this project should first verify the scope of work (as stated on the plans)
before submitting bids; not after the job has started.
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2.
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Building Facilities Coordination
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a)
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All deliveries of material will be made through the parking lot entrance.
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b)
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Construction materials and equipment will not be stored in any area without
prior approval of the Building Manager.
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c)
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Only the freight elevator is to be used by construction personnel and equipment.
Under no circumstances are construction personnel with materials and/or tools to use the “passenger” elevators.
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a)
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Suite entrance doors are to remain closed at all times, except when hauling
or delivering construction materials.
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b)
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All construction done on the property that requires the use of lobbies or Common
Area corridors will have carpet or other floor protection. The following are the only prescribed methods allowed:
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i)
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Mylar: Extra heavy-duty to be taped from the freight elevator to the suite under construction.
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ii)
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Masonite: 1/4 inch Panel, Taped to floor and adjoining areas. All comers, edges
and joints to have adequate anchoring to provide safe and “trip-free” transitions. Materials to be extra heavy-duty
and installed from freight elevator to the suite under construction.
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EXHIBIT B-1
CONSTRUCTION BY TENANT DURING
TERM (cont’d)
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c)
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Restroom wash basins will not be used to fill buckets, make pastes, wash brushes,
etc. If facilities are required, arrangements for utility closets will be made with the Building Office.
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d)
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Food and related lunch debris are not to be left in the suite under construction.
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e)
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All areas the general contractor
or their sub-contractors work in must be kept clean. All suites the general contractor
works in will have construction debris removed prior to completion inspection. This includes
dusting of all window sills, light diffusers, cleaning of cabinets and sinks. All Common
Areas are to be kept clean of building materials at all times so as to allow tenants
access to their suites or the building.
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4.
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Construction Requirements
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a)
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All Life and Safety and applicable Building Codes will be strictly enforced
(i.e., tempered glass, fire dampers, exit signs, smoke detectors, alarms, etc.). Prior coordination with the Building Manager is
required.
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b)
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Electric panel schedules must be brought up to date identifying all new circuits added.
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c)
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All electrical outlets and lighting circuits are to be properly identified. Outlets will be labeled
on back side of each cover plate.
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d)
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All electrical and phone closets being used must have panels replaced and doors
shut at the end of each day’s work. Any electrical closet that is opened with the panel exposed must have a work person present.
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e)
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All electricians, telephone personnel, etc. will, upon completion of their
respective projects, pick up and discard their trash leaving the telephone and electrical rooms clean. If this is not complied
with, a clean-up will be conducted by the building janitors and the general contractor will be back-charged for this service.
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f)
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Welding or burning with an open flame will not be done without prior approval
of the Building Manager. Fire extinguishers must be on hand at all times.
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g)
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All “anchoring” of walls or supports to the concrete are not to
be done during normal working hours (7:30 AM - 6:00 PM, Monday through Friday). This work must be scheduled before or after these
hours during the week or on the weekend.
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h)
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All core drilling is not to be done during normal working hours (7:30 AM -
6:00 PM, Monday through Friday). This work must be scheduled before or after these hours during the week or on the weekend.
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i)
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All HVAC work must be inspected by the Building Engineer. The following procedures
will be followed by the general contractor:
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i)
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A preliminary inspection of the HVAC work in progress will be scheduled through
the Building Office prior to the reinstallation of the ceiling grid.
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ii)
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A second inspection of the HVAC operation will also be scheduled through the
Building Office and will take place with the attendance of the HVAC contractor’s Air Balance Engineer. This inspection will take
place when the suite in question is ready to be air-balanced.
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iii)
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The Building Engineer will inspect the construction on a periodic basis as well.
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j)
All
existing thermostats, ceiling tiles, lighting fixtures and air conditioning grilles shall be saved and turned over to the Building
Engineer.
Good housekeeping rules and regulations
will be strictly enforced. The building office and engineering department will do everything possible to make your job easier.
However, contractors who do not observe the construction policy will not be allowed to perform within this building. The cost of
repairing any damages that are caused by Tenant or Tenant’s contractor during the course of construction shall be deducted
from Tenant’s Security Deposit.
[REMAINDER OF PAGE INTENTIONALLY
LEFT BLANK]
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ORIGINAL
EXHIBIT B-1
CONSTRUCTION BY TENANT DURING
TERM (cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1997, LLC, a Delaware
limited liability company
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RITTER PHARMACEUTICALS, INC., a
Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Andrew Ritter
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a Delaware corporation, its Manager
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Name:
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Andrew Ritter
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By:
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/s/ Michael J. Means
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Michael J. Means,
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Senior Vice President
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Dated:
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6/26/13
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EXHIBIT C
RULES AND REGULATIONS
BUILDING RULES AND REGULATIONS
1. Access.
Tenant and/or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or
shareholders shall only use the sidewalks, entrances, lobby(ies), garage(s), elevators, stairways, and public corridors as a means
of ingress and egress, and shall take such actions as may reasonably be necessary to ensure that the same remain unobstructed at
all times.
The entrance and
exit doors to the Premises are to be kept closed at all times except as required for orderly passage to and from the Premises.
Except on balconies available for the joint or exclusive use of Tenant as otherwise specified hereinabove, Tenant shall not permit
its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to loiter in any
part of the Building or obstruct any means of ingress or egress. Tenant shall not cover any doors, and shall not cover any window,
other than with vertical or mini-blinds pre-approved in writing by Landlord. Landlord specifically disapproves the installation
of any film or foil covering whatsoever on the windows of the Premises.
Neither Tenant,
nor its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders shall go up
on the roof or onto any balcony serving the Building, except upon such roof, portion thereof, or balcony as may be contiguous to
the Premises and is designated in writing by Landlord as a roof-deck, roof-garden area, or exclusive use balcony area.
2. Restroom
Facilities.
The toilet rooms, toilets, urinals, wash bowls and other apparatus (the “Restroom Facilities”), whether
contained in the Common Areas of the Building and/or the interior of the Premises, shall not be used for any purpose other than
that for which they were designed. Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees,
officers, partners or shareholders to throw foreign substances of any kind whatsoever or papers not specifically designated for
use in the Restroom facilities down any toilet, or to dispose of the same in any way not in keeping with the instructions provided
to Tenant by the management of the Building regarding same, and Tenant hereby specifically agrees to reimburse Landlord directly
for the expense of any breakage, stoppage or damage resulting from Tenant’s violation of this rule.
3. Heavy
Equipment.
Landlord reserves the right, in Landlord’s sole discretion, to decline, limit or designate the location for
installation of any safes, other unusually heavy, or unusually large objects to be used or brought into the Premises or the Building.
In each case where Tenant requests installation of one or more such unusually heavy item(s), which request shall be conclusively
evidenced by Tenant’s effort to bring such item(s) into the Building or Premises, Tenant shall reimburse Landlord for the
costs of any engineering or structural analysis required by Landlord in connection therewith. In all cases, each such heavy object
shall be placed on a metal stand or metal plates or such other mounting detail of such size as shall be prescribed by Landlord.
Tenant hereby
indemnifies Landlord against any damage or injury done to persons, places, things or the Building or its Common Areas when such
damage or injury primarily arises out of Tenant’s installation or use of one or more unusually heavy objects. Tenant further
agrees to reimburse Landlord
for the costs of repair of any damage done to the Building or property therein by putting
in, taking out, or maintaining such safes or other unusually heavy objects.
4. Transportation of Freight.
Except as otherwise agreed to by Landlord in writing, Tenant or Tenant’s agents, clients, contractors, directors, employees,
invitees, licensees, officers, partners or shareholders shall only carry freight, furniture or bulky materials in or out of the
Building before or after Normal Business Hours, (as that term is defined in Section 8.1 of the Lease). Tenant may only install
and/or move such freight, furniture or bulky material after previous written notice of its intention to complete such a move, given
to the Office of the Building. The persons and/or company employed by Tenant for such work must be professional movers, reasonably
acceptable to Landlord, and said movers must provide Landlord with a certificate of insurance evidencing the existence of worker’s
compensation and all risk liability coverage in a minimum amount of $2,000,000.
Tenant may, subject
to the provisions of the immediately preceding paragraph, move freight, furniture, bulky matter and other material in or out of
the Premises on Saturdays between the hours of 8:00 A.M. and 6:00 P.M., provided that Tenant pays in advance for Landlord’s
reasonably anticipated additional costs, if any, for elevator operators, security guards and other expenses arising by reason of
such move by Tenant.
5. Flammable
Materials.
Except for such limited quantities of office materials and supplies as are customarily utilized in Tenant’s
normal business operations, Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline, flammable or combustible
fluid or material, other than those limited quantities of normal business operating materials as may reasonably be necessary for
the operation or maintenance of office equipment. Nor shall Tenant keep or bring into the Premises or the Building any other toxic
or hazardous material specifically disallowed pursuant to California state law.
6. Cooking
/ Odors / Nuisances.
Tenant shall not permit its agents, clients, contractors, directors, employees, invitees, licensees, officers,
partners or shareholders to engage in the preparation and/or serving of foods unless the Premises includes a self-contained kitchen
area. Nor shall Tenant permit the odors arising from such cooking, or any other improper noises, vibrations, or odors to be emanate
from the Premises. Tenant shall not obtain for use in the Premises, ice, drinking water, food, beverage, towel or other similar
services except at such reasonable hours and under such reasonable regulations as may be specified by Landlord.
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EXHIBIT C
RULES AND REGULATIONS (cont’d)
Tenant hereby
agrees to instruct all persons entering the Premises to comply with the requirements of the Building, by advising all persons entering
the Premises that smoking of any tobacco or other substance is prohibited at all times, except in such Common Areas located outside
the Building as may be designated by the Building management.
Tenant shall not
permit Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders
to interfere in any way with other tenants of the Building or with those having business with them.
Tenant shall not
permit its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders to bring
or keep within the Building any animal, bird or bicycle, except such seeing-eye dog or other disability assistance type animal
as may comply with the requirements of any handicapped ordinances having jurisdiction therefor.
Tenant shall store
its trash and garbage within the Premises. No material shall be placed in the trash boxes or receptacles if such material is a
hazardous waste or toxic substance or is of such a nature that its disposal in Landlord’s ordinary and customary manner of
removing and disposing of trash and garbage would be a violation of any law, ordinance or company regulation governing such disposal.
All garbage and refuse disposal shall be made only through entry ways and elevators provided for such purposes and at such times
as Landlord shall designate. As and when directed by Landlord and/or if required by any governmental agency having jurisdiction
therefor, Tenant shall comply with all directives for recycling and separation of trash.
Tenant shall not
employ any person to do janitorial work in any part of the Premises without the prior written consent of Landlord, which consent
may be withheld in Landlord’s sole discretion.
Landlord reserves
the right to exclude or expel from the Building any person who in Landlord’s sole discretion is intoxicated or under the
influence of liquor or drugs or who, in any manner, engages in any act in violation of the Rules and Regulations of the Building.
Tenant shall not
conduct any public or private auction, fire sale or other sale of Tenant’s personal property, furniture, fixtures or equipment
or any other property located in or upon the Premises, without Landlord’s prior written consent, which consent shall be in
Landlord’s sole discretion.
7. Storage.
Tenant may only store goods, wares, or merchandise on or in the Premises in areas specifically designated by Landlord for such
storage.
8. Directives
to Management.
Tenant’s requirements, other than those Landlord specifically agrees to perform elsewhere in this Lease,
shall only be attended to upon the Building management’s receipt of Tenant’s written request therefor. Landlord’s
employees shall not perform any work or do anything outside of their regular duties unless under special instruction from the Building
management. No security guard, janitor or engineer or other employee of the Building management shall admit any person (Tenant
or otherwise) to the Premises without specific instructions from the Office of the Building and written authorization for such
admittance from Tenant.
9. Keys
and Locks.
Landlord shall furnish Tenant with two keys to each door lock existing in the Premises. Tenant shall reimburse Landlord
a reasonable charge for these and any additional keys. Tenant shall not be permitted to have keys made, nor shall Tenant alter
any lock or install a new or additional lock or bolts on any door of the Premises without Landlord’s prior written consent.
Tenant shall, in each case, furnish Landlord with a key for any additional lock installed or changed by Tenant or Tenant’s
agent(s). Tenant, upon the expiration or earlier termination of this Lease, shall deliver to Landlord all keys in the possession
of Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders
for doors in the Building, whether or not furnished to Tenant by Landlord. If Tenant, or Tenant’s agents, clients, contractors,
directors, employees, invitees, licensees, officers, partners or shareholders, lose or misplace any key(s) to the Building, Landlord
shall, in Landlord’s sole discretion, either replace said key(s) or re-key such locks as may be affected thereby, and Tenant
shall reimburse Landlord for all such costs of such re-keying and/or replacement.
10. Solicitation.
Tenant and/or its agents, clients, contractors, directors, employees, invitees, licensees, officers, partners or shareholders
shall not permit any canvassing, peddling, soliciting and/or distribution of handbills or any other written materials to occur
in the Premises and/or the Building, nor shall Tenant or Tenant’s agents, clients, contractors, directors, employees, invitees,
licensees, officers, partners or shareholders engage in such solicitation or distribution activities.
11. Retail
Sales, Services and Manufacturing Prohibited.
Except with the prior written consent of Landlord, Tenant shall not sell, or
permit the retail sale of, newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general
public in or on the Premises, nor shall Tenant carry on or permit or allow any employee or other person to carry on the independent
business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of other
occupants of any other portion of the Building. Tenant shall not permit the Premises to be used for manufacturing or for any illegal
activity of any kind, or for any business or activity other than for Tenant’s specific use.
12. Change
in Name or Address.
Landlord shall have the right, exercisable without notice and without liability to Tenant, to change the
name and street address of the Building.
13. Projections
from Premises.
Tenant shall not install any radio or television antenna, loudspeaker or other device on the roof or the exterior
walls of the Building or in any area projecting outside the interior walls of the Premises. Tenant shall not install or permit
to be installed any awnings, air conditioning units or other projections, without the prior written consent of Landlord.
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EXHIBIT C
RULES AND REGULATIONS (cont’d)
14. Superiority
of Lease.
These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole
or in part, the covenants, agreements or provisions of this Lease. If a conflict or disagreement between the Lease and these Rules
becomes apparent, this Lease shall prevail.
15. Changes
to Rules and Regulations.
Provided such changes do not materially harm Tenant’s ability to conduct its normal business
operations, Landlord shall retain the right to change, add or rescind any rule or regulation contained herein, or to make such
other and further reasonable and non-discriminatory Rules and Regulations as in Landlord’s sole judgment may, from time
to time, become necessary for the management, safety, care and cleanliness of the Premises, the Building or the Parking Facilities,
or for the preservation of good order therein, or for the convenience of other occupants and tenants therein, so long as such
rescission, addition, deletion or change is thereafter reasonably applied to all occupants of the Building affected thereby.
PARKING RULES AND REGULATIONS
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A.
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Tenant shall strictly comply with all posted speed limits, directional signs,
yield signs, stops signs and all other signs within or about the parking facilities.
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B.
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Tenant shall register all vehicle license plate numbers with the Building management.
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C.
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Tenant shall be responsible for the cost of repairing any damage to the parking
facilities or cleaning any debris created or left by Tenant, including, without limitation, oil leakage from motor vehicles parked
in the parking facilities under its auspices.
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D.
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Landlord, in addition to reserving the right to designate one or more areas
solely for visitor parking, which areas may be changed by Landlord from time to time with or without prior notice to Tenant, reserves
the right to allocate additional visitor spaces on any floor of the parking facilities. Tenant shall not park any vehicles in any
spaces designated as visitor only spaces or customer spaces within the parking facilities.
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E.
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Tenant shall strictly comply with all rules, regulations, ordinances, speed
limits, and statutes affecting handicapped parking and/or access, and shall not park any vehicles within the fire lanes, along
parking curbs or in striped areas.
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F.
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Tenant shall only use the number of parking permits allocated to it and shall
not permit more than one of its employees to utilize the same parking permit. Landlord reserves the right to assign or reassign
parking spaces within the Parking facilities to Tenant from time to time, and provided Landlord is required to do so by reason
of any action arising out of a governmental mandate imposed on Landlord, Landlord further reserves the right at any time to substitute
an equivalent number of parking spaces in a parking facilities or subterranean or surface parking facility within a reasonable
distance of the Premises.
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G.
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Except with
Landlord’s managin
g
agent(s)’ prior written consent, Tenant shall
not leave vehicles in the parking facilities overnight, nor park any vehicles in the
parking facilities other than automobiles, motorcycles, motor-driven or non-motor-driven
bicycles or four-wheeled trucks or vans. Landlord may, in its sole discretion, designate
separate areas for bicycles and motorcycles. Tenant shall ensure that vehicles parking
in the parking facilities by using the parking permits assigned to Tenant shall be parked
entirely within the striped lines designating a single space and are not so situated
or of such a width or length as to impede access to or egress from vehicles parked in
adjacent areas or doors or loading docks. Further, all vehicles utilizing Tenant’s
parking permits shall not be higher than any height limitation that may be posted, or
of such a size, weight or dimension so that entry of such vehicle into the parking facilities
would cause any damage or injury thereto.
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H.
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Tenant shall not allow any of the vehicles parked using Tenant’s permits,
or the vehicles of any of Tenant’s suppliers, shippers, customers or invitees to be loaded or unloaded in any area other
than those specifically designated by Landlord for loading.
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I.
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Tenant shall not use or occupy the parking facilities in any manner which will
unreasonably interfere with the use of the parking facilities by other tenants or occupants of the Building. Without limitation,
Tenant agrees to promptly turn off any vehicle alarm system activated and sounding an alarm in the parking facilities. In the event
said alarm system fails to turn off and no longer sound an intruder alert fifteen (15) minutes after commencing such an alarm,
Landlord shall reserve the right to remove the vehicle from the parking facilities at Tenant’s sole expense.
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J.
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Tenant acknowledges that the Rules and Regulations as posted herein shall be
in effect twenty-four hours per day, seven days per week, without exception.
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K.
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Tenant acknowledges
that the uniformed guard officers and parking attendants serving the parking facilities
are authorized to issue verbal and written warnings of Tenant’s violations of any
of the rules and regulations contained herein. Except in the case of a car alarm continuing
to sound in excess of a maximum of fifteen (15) minutes, in which case no further notice
by Landlord shall be required. If Tenant or Tenant’s agents, contractors, directors,
employees, officers, partners or shareholders continue to materially breach these rules
and regulations after expiration of written notice and the opportunity to cure has been
given to Tenant, then in addition to such other remedies and request for injunctive relief
it may have, Landlord shall have the right, without additional notice, to remove or tow
away the vehicle involved and store the same, all costs of which shall be borne exclusively
by Tenant and/or revoke Tenant’s parking privileges and rights under the Lease.
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Initial
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Initial
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Initial
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Initial
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ORIGINAL
EXHIBIT C
RULES AND REGULATIONS (cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1997, LLC, a Delaware
limited liability company
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RITTER PHARMACEUTICALS, INC., a
Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Andrew Ritter
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a Delaware corporation, its Manager
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Name:
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Andrew Ritter
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By:
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/s/ Michael J. Means
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Michael J. Means,
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Senior Vice President
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Dated:
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6/26/13
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Initial
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Initial
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Initial
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Initial
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EXHIBIT D
INTENTIONALLY OMITTED
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Initial
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Initial
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Initial
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Initial
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EXHIBIT E
INTENTIONALLY OMITTED
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Initial
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Initial
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Initial
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Initial
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EXHIBIT F
ASBESTOS RIDER
As you are probably aware,
many buildings constructed during the 20th Century through the mid to late 1970s, such as this property, utilized some degree of
asbestos in the construction process; such practice was formerly a standard in the building trade. Asbestos is the commercial name
for a naturally-occurring family of fibrous minerals which was used in building materials mainly as a fireproofing, reinforcing
and insulating agent, and is typically encountered in wrapped heating system insulation, structural fire-proofing, acoustical ceilings,
vinyl flooring and roofing felts. Asbestos was regularly used in many other building and non-building products as well. In fact,
asbestos fibers are generally present in urban air and water.
Extensive governmental
regulation of asbestos now exists, and proposals have been made for additional regulations. No federal laws, regulations or standards,
however, require wholesale removal of asbestos from an occupied building. Indeed, the EPA has concluded that “The presence
of asbestos in a building does not mean that the health of building occupants is endangered. If asbestos-containing material remains
in good condition and is unlikely to be disturbed, exposure will be negligible.”
Guidance for Controlling Asbestos-Containing
Materials in Buildings
(EPA 560/5-85-024 June 1985), page 1-1. According to the experts, the health risks associated with
asbestos arise only when and if fibers become airborne and are inhaled, for example, as a result of maintenance or repairs conducted
without proper controls. When inhaled, asbestos fibers can cause certain diseases, including asbestosis, mesothelioma and lung
cancer (and risks for smokers are dramatically compounded). The thrust of both current EPA and OSHA requirements and non-binding
guidance is to identify the materials that are releasing or could release asbestos fibers into the air, implement proper response
actions when such materials are located, maintain asbestos in good condition, and follow appropriate work practices when disturbance
of asbestos is unavoidable.
It is the policy of the
property owner to provide a healthy environment by repairing, removing or otherwise abating any damaged asbestos materials that
pose a health risk, and by complying with all regulations concerning asbestos at the property and following procedures that will
minimize or avoid disturbance of asbestos-containing materials (ACM). We have engaged a qualified asbestos consultant to survey
the property for asbestos and assist in implementing an asbestos management plan which includes, among other things, periodic reinspection
and surveillance, air monitoring, information and training programs for building engineering and maintenance staff, cleaning procedures,
emergency fiber release and training programs for building engineering and maintenance staff, cleaning procedures, emergency fiber
release procedures, work procedures and other measures to minimize potential fiber releases, as well as recordkeeping requirements.
Because any tenant alterations
or other work at the property could disturb ACM and possibly release asbestos fibers into the air, we must require the property
manager’s written approval prior to beginning such projects. This includes major alterations, but might also include such activities
as drilling or boring holes, installing electrical, telecommunications or computer lines, sanding floors, removing ceiling tiles,
or other work which might disturb ACM. In many cases, such activities will not affect ACM, but you must check with the property
manager in advance, just in case, and the property manager may make available such instructions as may be required. Any such work
should not be attempted by an individual or contractor who is not qualified to handle ACM.
In connection with the
foregoing, we are adopting the following new rules under tenant leases: (1) the owner, and representatives of the owner, including,
without limitation, the owner’s ACM consultant, are entitled to enter into the premises of any tenant to inspect for ACM, perform
air tests and abatement which may be legally required or prudent, and otherwise to comply with legal requirements or recommended
practices relating to ACM; (2) any tenant, contractor, or other party must obtain the property manager’s prior written approval
before performing any alterations on any tenant space, or performing any other work at the property that might disturb ACM or involve
exposure to asbestos fibers as described above.
We trust that the implementation
of the aforesaid requirements will not unduly inconvenience you. If you have any questions or concerns about asbestos, please contact
the property manager. Thank you for your cooperation in this mutual endeavor
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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Initial
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Initial
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Initial
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Initial
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ORIGINAL
EXHIBIT F
ASBESTOS RIDER
(cont’d)
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LANDLORD:
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TENANT:
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DOUGLAS EMMETT 1997, LLC, a Delaware
limited liability company
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RITTER PHARMACEUTICALS, INC., a
Delaware corporation
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By:
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Douglas Emmett Management, Inc.,
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By:
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/s/ Andrew Ritter
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a Delaware corporation, its Manager
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Name:
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Andrew Ritter
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By:
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/s/ Michael J. Means
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Michael J. Means,
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Senior Vice President
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Dated:
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6/26/13
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Initial
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Initial
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Initial
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Initial
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Exhibit 10.2
December 2, 2014
Michael D. Step
P.O. Box 676061
Rancho Santa Fe, CA 92067
Dear
Michael:
On behalf of the
Board of Directors of Ritter Pharmaceuticals, Inc. (the “Company”) (the “Board”), I am pleased to extend
an offer of employment to you to serve as the Chief Executive Officer of the Company. As Chief Executive Officer, you will have
the dut
i
es, authorities and responsibilities commensurate
with such position and will report directly to the Board. For so long as you serve as Chief Executive Officer, you will also serve
as a member of the Board. Your employment with the Company commenced on October 1, 2014 (the “Commencement Date”).
Compensation
Base
Salary
: You will receive an annual base salary of $360,000.00 paid semi-monthly in accordance with the Company’s
payroll practice.
Stock
Options
:
(a) As
of the date hereof, you will be granted three options to purchase shares of the Common Stock of the Company (the “Common
Stock”) at an exercise price of $0.82 per share.
(b) The
first option (the “First Option”) will be to purchase 4,622,741 shares of the Common Stock of the Company (the “Common
Stock”). The second option (the “Second Option”) will be to purchase 524,646 shares of the Common Stock. The
First Option and the Second Option will each be immediately exercisable in full, with 44/48ths of the total number of shares covered
by each option to be subject to a right of repurchase by the Company upon termination of your employment with the Company for any
reason. The right of repurchase under the First and Second Option will lapse over a period of forty-four months, with 1/44th of
the total number of shares subject to the right of repurchase lapsing on January 1, 2015 and on the first day of each month thereafter.
In addition, the right of repurchase will lapse in its entirety upon the occurrence of any of the events set forth in Sections
3 (Termination Without Cause or by Executive With Good Reason) and 4 (Change in Control Termination) of the Executive Severance
& Change in Control Agreement (as hereinafter defined).
(c) The third option (the
“Third Option”) will be to purchase a number of shares of the Common Stock as determined in this clause (c) at an exercise
price of $0.82 per share. The Third Option will only become exercisable if on or before the first anniversary of the Commencement
Date the Company has raised a minimum of Fifteen Million Dollars ($15,000,000.00) in one or more public and/or private equity financing
transactions during the prior twelve (12) month period (a “Qualified Financing”). In the event the Company closes a
Qualified Financing, the Third Option will become immediately exercisable for such number of shares of Common Stock as will, together
with the shares subject to the First Option, represent seven and one-half percent (7.5%) of the shares of Common Stock deemed to
be outstanding on a fully-diluted basis after giving effect to the issuance of the Third Option. In the event the Company does
not close a Qualified Financing on or before the first anniversary of the Commencement Date, the Third Option will terminate in
its entirety and be of no further force or effect. Seventy-five percent (75%) of the shares subject to the Third Option will be
subject to a right of repurchase by the Company upon termination of your employment with the Company for any reason. The right
of repurchase will lapse with respect to 1/36
th
of the total number of shares of subject to the right of repurchase
on first day of each month following the date on which the
Michael D. Step
December 2, 2014
Page
2
Third Option first becomes
exercisable. In addition, the right of repurchase will lapse in its entirety upon the occurrence of one or more of the events set
forth in Sections 3 (Termination Without Cause or by Executive With Good Reason) and 4 (Change in Control Termination) of the Executive
Severance & Change in Control Agreement (as hereinafter defined).
(d) Each
of the options will be evidenced by the Company’s standard form of Stock Option Agreement. Any shares of the Common Stock
issued upon exercise of the options will be subject to a right of first refusal in favor of the Company and certain restrictions
on transfer, which will be set forth in an Optionee Restriction Agreement to be entered into between the Company and you.
Severance
:
On the Commencement Date, you and the Company will execute an Executive Severance & Change In Control Agreement, substantially
in the form attached hereto as Exhibit “A” (the “Executive Severance & Change in Control Agreement”).
Benefits
You will be entitled to receive
all employee benefits that the Company customarily makes available to employees in positions comparable to yours. You will be entitled
to four (4) weeks of vacation annually. Additionally, you will be eligible to receive equity award grants pursuant to the terms
of the Company’s equity compensation plans.
Patent, Copyright and Non-Disclosure
Agreement
On the Commencement
Date, you will execute the Company’s standard form of non-disclosure-confidentiality-non-circumvention agreement.
Governing Law
The validity,
interpretation, construction and performance of the provisions of this offer letter will be governed by the laws of the State of
California without reference to principles of conflicts of laws that would direct the application of the law of any other jurisdiction.
Severability
The invalidity
or unenforceability of any provision of this offer letter will not affect the validity or enforceability of the other provisions
of this offer letter, which will remain in full force and effect. Moreover, if any provision is found to be excessively broad in
duration, scope or covered activity, the provision will be construed, and to the extent necessary will be deemed to be amended,
so as to be enforceable to the maximum extent compatible with applicable law.
Employment Relationship; Modification
of Terms of Offer
Please be advised that neither this offer letter
nor any statement made by the Company or its parent, subsidiaries or affiliates is intended to be a contract of employment for
a definite period of time. That means that the employment relationship established by this offer letter is “at will”
and either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or
notice. The Company may from time to time and in its own discretion, change the terms and conditions of your employment with or
without notice.
Michael D. Step
December 2, 2014
Page
3
To indicate your acceptance of this
offer of employment, please sign and return the enclosed copy of this offer letter to me by December 10, 2014.
Sincerely,
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/s/ Andrew Ritter
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Name: Andrew Ritter
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Title: President
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ACCEPTED
:
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/s/
Andrew Ritter
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Executive
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Dec.
10, 2014
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Date
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Exhibit A
Exhibit 10.3
Ritter Pharmaceuticals, Inc.
Executive Compensation Plan
Objectives of the Plan
The purpose of this Executive Compensation
Plan (the “Plan”) is to reward the Company’s Chief Executive Officer, Andrew J. Ritter (“A. Ritter”),
and Chief Operating Officer, Ira Ritter (“I. E. Ritter”), for contributions to the success of Ritter Pharmaceuticals,
Inc. (the “Company”). A. Ritter and I. Ritter are each referred to herein as an “Executive” and, together,
as the “Executives.” This Plan shall be effective as of the date it is approved by the Company’s Board of Directors
(the “Board”) and executed by the covered Executives (the “Effective Date”).
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1.
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Base Salary
. From and after the Effective Date (as defined below), A. Ritter’s base
salary shall be $225,000 per year (the “A. Ritter Base”) and I. Ritter’s base salary shall be $210,000 per year
(the “I. Ritter Base” and, together, the “Base Salary”), paid out in accordance with the Company’s
normal payroll practices. Base Salary hereunder shall be subject to adjustment from time to time by the Board and in accordance
with
Section A.2
hereof. The parties acknowledge that they have been receiving their applicable Base Salary since August
1, 2012, and that no additional amounts are due to them in respect of this provision as of the Effective Date. Base Salary shall
be reviewed by the Board upon the earlier of consummation of a Base Financing or License Event (each as defined below).
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2.
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Car Allowance
. From and after the Effective Date, A. Ritter shall be entitled to an annual
car allowance of up to $8,400 and I. Ritter shall be entitled to an annual car allowance of up to $12,000. Any car allowance claimed
by an Executive from time to time hereunder shall result in an automatic reduction in such Executive’s Base Salary then in
effect.
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3.
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Clinical Trial and Fundraising Bonus Opportunities
. Each Executive shall be eligible for
certain cash and equity bonuses upon the achievement of one or more of the milestones set forth below.
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a.
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FDA meeting
. Any in-person or telephonic meeting with the FDA regarding, or any written
response by the FDA to questions posed by the Company regarding, RP-G28’s path to FDA approval. Achievement of this milestone
shall result in (i) payment of a one-time cash bonus of $10,000 to each Executive hereunder paid within 60 days of the achievement
of the milestone; and (ii) vesting of each Executive’s Option Grant (as defined below) in the amount of 35% of 25,000 shares,
with the balance of such 25,000 shares vesting in 36 equal monthly installments beginning on the last day of the following month.
The parties understand that this milestone was achieved on February 20, 2012, and that the Executives shall be entitled to the
applicable cash bonus and equity vesting in accordance with the terms hereof.
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b.
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Clinical trial funding commitment
. Any commitment by a third-party to fund a Phase II or
later clinical trial after the Effective Date, whether or not any such committed funds are paid directly to the Company. Achievement
of this milestone shall result in (i) a payment of a one-time cash bonus of $75,000 to each Executive hereunder paid within 60
days of the achievement of the milestone; and (ii) vesting of each Executive’s Option Grant in the amount of 35% of 75,000
shares, with the balance of such 75,000 shares vesting in 36 equal monthly installments beginning on the last day of the following
month. Notwithstanding the foregoing, any cash bonus for which an Executive may be eligible hereunder shall not be due and payable
at any time the Company has less than $2,000,000 in available cash.
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c.
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Fundraising up to $10,000,000
. The sale of additional equity capital for cash, in one or
more closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial after the Effective
Date, in an aggregate amount in excess of $2,000,000, but no more than $10,000,000 (a “Base Financing”). Achievement
of this milestone shall result in: (i) payment of a one-time cash bonus of $50,000 to each Executive hereunder paid within 60 days
of the achievement of the milestone; and (ii) vesting of each Executive’s Option Grant in the amount of 35% of 50,000 shares,
with the balance of such 50,000 shares vesting in 36 equal monthly installments beginning on the last day of the following month.
Notwithstanding the foregoing, any cash bonus for which an Executive may be eligible hereunder shall not be due and payable at
any time the Company has less than $2,000,000 in available cash.
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d.
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Fundraising in Excess of $10,000,000
. The sale of additional equity capital for cash, in
one or more closings after July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial after the
Effective Date, in an aggregate amount in excess of $10,000,000. Achievement of this milestone shall result in (i) payment of a
one-time cash bonus of $150,000 to each Executive hereunder paid within 60 days of the achievement of the milestone; and (ii) vesting
of each Executive’s Option Grant in the amount of 35% of 100,000 shares, with the balance of such 100,000 shares vesting
in 36 equal monthly installments beginning on the last day of the following month. Notwithstanding the foregoing, any cash bonus
for which an Executive may be eligible hereunder shall not be due and payable at any time the Company has less than $2,000,000
in available cash. In addition, any cash or equity bonus amount due under this
Section A.3(d)
shall be reduced by any cash
or equity bonus paid or payable pursuant to
Section A.3(c)
.
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4.
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License Event Bonus Opportunities
. The closing of an exclusive license of a Product Candidate
(as defined below) by and/or any option to exclusively license such Product Candidate to a third party (a “License Event”)
with a minimum upfront payment to the Company of $2,000,000. Achievement of this milestone shall result in:
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a.
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payment to each Executive of a graduated cash bonus equal to (i) 5% of the Initial Period License
Payment (as defined below) up to $5,000,000; (ii) 4% of the Initial Period License Payment in excess of $5,000,000 up to $10,000,000;
and (iii) 3% of the Initial Period License Payment in excess of $10,000,000. Any such payment shall be made by March 15 of the
year following the year in which the payment is earned. For purposes of this Plan, the term “Initial Period License Payment”
shall mean the aggregate amount in cash received by the Company (not including any amount placed in escrow or subject to earn-outs,
contingencies or other deferrals or earmarked to pay or reimburse the Company for research and development activities) in respect
of the License Event over a 24-month period beginning on the closing date of such License Event (which period is referred to herein
as the “Initial Period”);
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b.
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upon the receipt by the Company of an Initial Period License Payment of more than $2,000,000, vesting
of each Executive’s Option Grant in the amount of 35% of 325,000 shares, with the balance of such 325,000 shares vesting
in 36 equal monthly installments beginning on the last day of the following month; and
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c.
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with respect to any Annual Exc s Milestone Payments (as defined below), (i) payment of a cash bonus
equal t 3% of such amounts to each Executive; and (ii) vesting of each Executive’s Option Grant in the amount of 35% of 50,000
shares, with the balance of such 50,000 shares vesting in 36 equal monthly installments beginning on the last day of the following
month. For purposes of this
Section A.4(c)
, the term “Annual Excess Milestone Payments” shall mean the amount
in cash in excess of $2,000,000 (not including any amounts placed in escrow or subject to earn-outs, contingencies or other deferrals)
that is received by the Company in respect of any Post-Closing Milestones (as defined below) in each 12-month period beginning
on the expiration of the Initial Period. For purposes of this Section A.4(c), the term “ Post-Closing Milestones” shall
mean any post-closing payouts set forth in the definitive transaction documentation executed in connection with a License Event,
provided, however, that such amounts shall not include any amounts that are determined by the Board to comprise all or a portion
of any upfront payment made in connection with a License Event and any royalty payments based on product sales. Notwithstanding
the foregoing, no payment shall be due and payable to an Executive under this
Section A.4(c)
at any time the Company has
less than $1,000,000 in available cash.
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5.
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Multiple License Events for a Single Product Candidate
. In the event the Company enters
into more than one (1) License Event with respect to a single Product Candidate (i.e., for a separate field of use), then the proceeds
of any such additional License Event shall be included with the proceeds of the original
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License Event for
purposes of meeting any of the financial thresholds set forth in
Section A.4
above with respect to such Product Candidate.
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6.
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Multiple Offers for RP-G28
. Receipt by the Company of more than one
bonafide
term
sheet for a proposed License Event with respect to RP-G28. Achievement of this milestone shall result in payment of an additional
10% of any cash bonus earned in connection with the achievement of any of the bonus opportunities described in
Sections A.3
and
Section A.4
above. Such payment shall be made by March 15 of the year following the year in which the payment is earned.
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B.
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Severance
. If the Company terminates Executive’s employment at any time after
the Effective Date other than for Cause (as defined below), Executive shall be entitled to a lump sum cash severance payment in
the amount of nine (9) months of his Base Salary then in effect, payable within 60 days of the Executive’s termination, provided,
however, that such severance shall not be due and payable at any time the Company has less than $2,000,000 in available cash. For
purposes of this Section B, “Cause” means (i) Executive’s willful and continued failure to substantially perform
the duties and obligations of Executive’s position with the Company; (ii) any proven act of personal dishonesty, fraud or
misrepresentation taken by Executive which was intended to result in substantial gain or personal enrichment of Executive at the
expense of the Company; (iii) Executive’s violation of a federal or state law or regulation applicable to the Company’s
business which violation was or is reasonably likely to be injurious to the Company, excluding violations made in good faith and
upon advice of the Company’s counsel or directive of the Board; (iv) Executive’s conviction of, or plea of
nolo
contendere
or guilty to, a felony under the laws of the United States or any State, excluding felonies for minor traffic violations
and vicarious liability (in any such case of vicarious liability, so long as Executive did not know of the felony and did not willfully
violate the law); or (v) Executive’s breach of the terms of any agreement in place between Executive and the Company from
time to time, which breach, if curable, is not remedied in a reasonable period of time (not to exceed thirty (30) days) after receipt
of written notice from the Company.
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C.
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Equity Cap, Timing of Cash Payments, Certain Tax Provisions; Product Candidates
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1.
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Option Terms
. Upon approval of this Plan, each Executive shall be granted an option to purchase
up to 350,000 shares of the Company’s Common Stock (each, an “Option Grant”), which option shall vest in the
manner set forth above. The Option Grants shall be issued in accordance with the terms of the Company’s equity incentive
plan and option agreement then in effect exercisable at a price equal to the Company’s fair market value on the date of grant.
Notwithstanding anything to the contrary set forth herein, the total potential number of stock options that may be awarded under
this Plan may in no event exceed 350,000 per Executive and any options for which a vesting date or schedule has not been established
by the second anniversary of the grant date shall be automatically terminated.
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2.
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Timing of Cash Payments
. Any cash bonus not made on or prior to the date due solely as a
result of the Company’s failure to satisfy a minimum cash availability requirement as of such date (each such date, a “Cash
Bonus Payment Date”) shall be made when sufficient cash becomes available, except that if sufficient cash remains unavailable
for more one (1) year from any Cash Bonus Payment Date, the payment to which such Cash Bonus Payment Date relates will not be made
even if sufficient cash later becomes available.
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3.
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Tax Withholding
. The Company or an affiliate may deduct from all compensation and benefits payable under this Plan any
taxes or withholdings the Company is required to deduct pursuant to state, federal or other laws.
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4.
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Code Section 409A
. To the extent applicable, it is intended that this Plan and any payment
made hereunder shall comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”),
or an exemption or exclusion therefrom, and any related regulations or other guidance promulgated with respect to such section
by the U.S. Department of the Treasury or the Internal Revenue Service (“Code Section 409A”) and shall in all respects
be administered in accordance with Code Section 409A. Any provision that would cause the Plan or any payment hereunder to fail
to satisfy Code Section 409A shall have no force or effect until amended to comply with Code Section 409A in the least restrictive
manner necessary and without any diminution in the value of the payments to Executive, which amendment may be retroactive to the
extent permitted by Code Section 409A.
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5.
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Product Candidate
. For purposes of
Section A.4
above, the term “Product Candidate”
shall mean RP-G28 and/or any future product candidate developed by the Company from time to time during the term of this Plan (provided
such future product candidate has been designated as a new Product Candidate for purposes of this Plan by the Committee (as defined
below)). The Executives may earn the bonuses set forth in
Section A.4
above for any License Event (or multiple License Events)
involving a particular Product Candidate provided that the applicable minimum financial threshold has been met, provided, further,
however, that no equity bonus opportunity set forth in
Section A.4
above may be earned by an Executive more than once regardless
of the number of qualifying Product Candidates and related License Events consummated during the term of this Plan.
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D.
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Administration and General Provisions
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1.
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Administration
. This Plan shall be administered by the Board’s Compensation Committee
(the “Committee”), except as otherwise provided herein. Whether the Company has achieved any of the milestones described
above, and the determination to issue any cash or equity bonus hereunder, shall be within the sound discretion of the Board acting
upon the recommendation of the Committee.
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2.
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Entire Agreement
. This Plan embodies the entire agreement and understanding of the Company
and the Executives in respect of the subject matter of the Plan and
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supersedes and replaces
all prior agreements, understandings and commitments with respect to such subject matter. This Plan may be amended only by a written
document signed by the Company and each Executive to whom the amendment applies.
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3.
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Assignment
. An Executive’s rights and obligations under this Plan may not be assigned
by the Executive.
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4.
|
Reformation
. If any section, subsection or provision hereof is found for any reason whatsoever
to be invalid or inoperative, that section, subsection or provision shall be deemed severable and shall not affect the force and
validity of any other provision of this Plan.
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5.
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Liquidation, Dissolution, Winding Up
. This Plan shall automatically terminate upon the liquidation, dissolution or winding
up the Company.
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6.
|
No Legal Representation
. The parties acknowledge that Quarles & Brady, LLP, is counsel
to the Company and assisted in the drafting of this document but, in doing so, did not represent either of the Executives, who
were free to obtain independent counsel at any time prior to the execution hereof.
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7.
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Creation of Rights
. Neither the establishment of this Plan, nor any modification or amendment
hereof, nor the payment of any award hereunder, shall be construed as giving an Executive: (i) any legal or equitable right against
the Company, Board or Committee, as the Plan administrator; (ii) the right to payment of any award hereunder (unless the same shall
be specifically provided herein); or (iii) the right to be retained in the service of the Company. Executive’s employment
is and shall at all times remain at-will. The Executive must be employed by the Company at the time any award hereunder is approved
for payment by the Board in order to be eligible to receive such award.
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The Plan was approved by the Board on
9/25
,
2013 and is hereby agreed to and acknowledged by the undersigned:
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On behalf of the Company:
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/s/ Andrew J. Ritter
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9/25/13
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Andrew J. Ritter
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Date
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On behalf of the Executive:
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/s/ Andrew J. Ritter
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9/25/13
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Andrew J. Ritter
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Date
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Chief Executive Officer
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Ira E. Ritter
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9/25/13
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Ira E. Ritter
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Date
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Chief Executive Officer
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Exhibit 10.4
EXECUTIVE SEVERANCE
&
CHANGE IN CONTROL AGREEMENT
THIS EXECUTIVE SEVERANCE
AND CHANGE IN CONTROL AGREEMENT
(the “
Agreement
”) is made by and between Ritter Pharmaceuticals, Inc. (the
“
Company
”), and Michael D. Step (“
Executive
”) as of December 2, 2014.
In consideration of the
mutual promises, covenants and obligations contained herein, the Company and Executive agree as follows:
1.
At-Will
Employment
.
The Company and Executive acknowledge that Executive’s employment is and
shall continue to be at-will, as defined under applicable law. If Executive’s employment terminates for any reason, Executive
shall not be entitled to any payments, benefits, damages, awards or compensation other than as provided by this Agreement, or as
may otherwise be available in accordance with the Company’s established employee plans and practices in accordance with other
agreements between the Company and Executive.
2.
Definitions
.
For purposes of this Agreement, the following terms have the following meanings:
(a) “
Accrued
Obligations
” means (i) Executive’s earned but unpaid Base Salary through the Termination Date; (ii) payment of
any annual, long-term, or other incentive award which relates to a completed fiscal year or performance period, as applicable,
and is payable (but not yet paid) on or before the Termination Date; (iii) a lump-sum payment in respect of accrued but unused
vacation days at Executive’s per-business-day Base Salary rate in effect as of the Termination Date; and (iv) any unpaid
expense or other reimbursements due pursuant to Company expense reimbursement policy.
(b)
“
Affiliate(s)
” means, with respect to any specified Person (as such term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended), any other Person that, directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such specified Person.
(c)
“
Annual Bonus
” means Executive’s target annual bonus for the year in which the Change in Control occurs.
(d)
“
Base Salary
” means Executive’s base rate of pay as of a specified date.
(e)
“
Cause
” means a finding by the Company that Executive has (i) been convicted of a felony or crime involving
moral turpitude; (ii) disclosed trade secrets or confidential information of the Company (or any Parent or Subsidiary) to persons
not entitled to receive such information; (iii) engaged in conduct in connection with Executive’s employment or service to
the Company (or any Parent or Subsidiary), that has, or could reasonably be expected to result in, material injury to the business
or reputation of the Company (or any Parent or Subsidiary), including, without limitation, act(s) of fraud, embezzlement, misappropriation
and
breach of fiduciary duty;
(iv) violated the operating and ethics policies of the Company (or any Parent or Subsidiary) in any material way, including, but
not limited to those relating to sexual harassment and the disclosure or misuse of confidential information; (v) engaged in willful
and continued negligence in the performance of the duties assigned to Executive by the Company, after Executive has received notice
of and failed to cure such negligence; or (vi) breached any material provision of any agreement between Executive and the Company
(or any Parent or Subsidiary), including, without limitation, any confidentiality agreement.
(f)
“
Change in Control
” means the occurrence of any of the following events:
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(i)
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Any “person” (as such term is used in sections 13(d) and 14(d) of the Exchange Act)
becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing more than 50% of the voting power of the then outstanding securities of the Company; provided that
a Change of Control shall not be deemed to occur as a result of a change of ownership resulting from the death of a shareholder,
and a Change of Control shall not be deemed to occur as a result of a transaction in which the Company becomes a subsidiary of
another corporation and in which the shareholders of the Company, immediately prior to the transaction, will beneficially own,
immediately after the transaction, shares entitling such shareholders to more than 50% of all votes to which all shareholders of
the parent corporation would be entitled in the election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote)
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(ii)
|
A change in the effective control of the Company which occurs on the date that a majority of members
of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by
a majority of the members of the Board prior to the date of the appointment or election; or
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(iii)
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The consummation of (A) a merger or consolidation of the Company with another corporation where
the shareholders of the Company, immediately prior to the merger or consolidation, will not beneficially own, immediately after
the merger or consolidation, shares entitling such shareholders to more than 50% of all votes to which all shareholders of the
surviving corporation would be entitled in the election of directors (without consideration of the rights of any class of stock
to elect directors by a separate class vote); (B) a sale or other disposition of all or substantially all of the assets of the
Company; or (C) a liquidation or dissolution of the Company.
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(g)
“
Disability
” means total and permanent disability as defined in Section 22(e)(3) of the Code or in the Company’s
long-term disability plan. A termination of Executive’s
employment due to a Disability
shall be effective only if the party terminating Executive’s employment first gives at least 15 days’ written notice
of such termination to the other party.
(h)
“
Good Reason
” means, without Executive’s express written consent, the occurrence of any one or more of
the following: (i) a substantial and material diminution in Executive’s duties or responsibilities; (ii) a material reduction
in Executive’s Base Salary; or (iii) the relocation of Executive’s principal place of employment to a location more
than 50 miles from Executive’s principal work location to a location that is more than 50 miles from the prior location.
Notwithstanding the foregoing, a relocation of Executive’s principal place of employment to a location closer to Executive’s
principal residence in San Diego, California shall not constitute “Good Reason.” A termination of employment by Executive
for Good Reason shall be effectuated by giving the Company written notice (“
Notice of Termination for Good Reason
”),
not later than 90 days following the occurrence of the circumstance that constitutes Good Reason, setting forth in reasonable detail
the specific conduct of the Company that constitutes Good Reason and the specific provision(s) of this Agreement on which Executive
relied. The Company shall be entitled, during the 30-day period following receipt of a Notice of Termination for Good Reason, to
cure the circumstances that gave rise to Good Reason, provided that the Company shall be entitled to waive its right to cure or
reduce the cure period by delivery of written notice to that effect to Executive (such 30-day or shorter period, the “
Cure
Period
”). If, during the Cure Period, such circumstance is remedied, Executive will not be permitted to terminate employment
for Good Reason as a result of such circumstance. If, at the end of the Cure Period, the circumstance that constitutes Good Reason
has not been remedied, Executive shall terminate employment for Good Reason on the date of expiration of the Cure Period.
(i)
“
Termination Date
” means the date on which Executive’s employment hereunder terminates.
3.
Termination
Without Cause or by Executive With Good Reason
. Subject to Section 6 below, if the Company
terminates Executive’s employment without Cause, or the Executive terminates for Good Reason, Executive shall be entitled
to: (a) the Accrued Obligations; (b) an amount equal to twelve (12) months of the Base Salary as in effect immediately prior to
the Termination Date, paid in a lump sum on the sixtieth (60
th
) day following the Termination Date; (c) medical, dental
benefits provided by the Company to Executive and Executive’s spouse and dependents (in each case, as provided in any applicable
plan) at least equal to the levels of benefits provided to other similarly situated active employees of the Company and its subsidiaries
until the earlier of (i) the twelve (12) month anniversary of the Termination Date or (ii) the date that Executive becomes covered
under a subsequent employer’s medical and dental plans; and (d) acceleration of vesting of all equity and equity-based awards.
4.
Change
in Control Termination
.
Subject to Section 6 below,
in
the event that within the one (1) month prior to or the twelve (12) months following a Change in Control the Company terminates
Executive’s employment without Cause, or the Executive terminates for Good Reason, then, in lieu of the payments and benefits
otherwise due to Executive under Section 3 above, Executive shall be entitled to: (a) the Accrued Obligations; (b) an amount equal
to the sum of (twelve (12) months of the Base Salary as in effect on the Termination Date or the date of the Change in Control,
whichever is greater; (c) medical, dental benefits provided by the
Company
to Executive and Executive’s spouse and dependents (in each case, as provided in any applicable plan) at least equal to the
levels of benefits provided to other similarly situated active employees of the Company and its subsidiaries until the earlier
of (i) the twelve (12) month anniversary of the Termination Date or (ii) the date that Executive becomes covered under a subsequent
employer’s medical and dental plans; and (d) acceleration of vesting of all equity and equity-based awards.
5.
Other
Terminations
. If Executive’s employment hereunder is terminated (a) by Executive without
Good Reason; (b) by the Company for Cause; or (c) due to Executive’s death or Executive’s Disability, Executive and/or
Executive’s estate or beneficiaries shall be entitled to the Accrued Obligations.
6.
Release
.
Executive’s entitlement to the payments (other than the Accrued Obligations) and benefits described in Sections 3 and 4 above
is expressly contingent upon Executive providing the Company with a signed release satisfactory to the Company (the “
Release
”).
To be effective, such Release must be delivered by Executive to the Company no later than 45 days following the Termination Date
and must not be revoked during the seven (7) days following such delivery. If such Release is not executed in a timely manner or
is revoked, all such payments and benefits shall immediately cease and the Executive shall be required to repay to the Company
any such payments that have already been paid to the Executive.
7.
Withholding
.
The Company shall withhold all applicable federal, state and local taxes, social security and workers’ compensation contributions
and other amounts as may be required by law with respect to compensation payable to Executive.
8.
Modification
of Payments
. In the event it shall be determined that any payment, right or distribution
by the Company or any other person or entity to or for the benefit of Executive pursuant to the terms of this Agreement or otherwise,
in connection with, or arising out of, his employment with the Company or a change in ownership or effective control of the Company
or a substantial portion of its assets (a “
Payment
”) is a “parachute payment” within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the “
Code
”) on account of the aggregate
value of the Payments due to Executive being equal to or greater than three times the “base amount,” as defined in
Section 280G(b)(3) of the Code, (the “
Parachute Threshold
”) so that Executive would be subject to the excise
tax imposed by Section 4999 of the Code (the “
Excise Tax
”) and the net after-tax benefit that Executive
would receive by reducing the Payments to the Parachute Threshold is greater than the net after-tax benefit Executive would receive
if the full amount of the Payments were paid to Executive, then the Payments payable to Executive shall be reduced (but not below
zero) so that the Payments due to Executive do not exceed the amount of the Parachute Threshold, reducing first any Payments under
Section 4(d) above.
9.
Section
409A
. (a) Notwithstanding anything herein to the contrary, this Agreement is intended to
be interpreted and applied so that the payment of the benefits set forth herein either shall either be exempt from the requirements
of Section 409A of the Code (“
Section 409A
”) or shall comply with the requirements of such provision.
(b) Notwithstanding
any provision of this Agreement to the contrary, if Executive is a “specified employee” within the meaning of Section
409A, any payments or arrangements due upon a termination of Executive’s employment under any arrangement that constitutes
a “nonqualified deferral of compensation” within the meaning of Section 409A and which do not otherwise qualify under
the exemptions under Treas. Regs. Section 1.409A-1 (including without limitation, the short-term deferral exemption or the permitted
payments under Treas. Regs. Section 1.409A-1(b)(9)(iii)(A)), shall be delayed and paid or provided, without interest, on the earlier
of (i) the date which is six months after Executive’s “separation from service” (as such term is defined in Section
409A and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s
death.
(c) After
any Termination Date, Executive shall have no duties or responsibilities that are inconsistent with having a “separation
from service” within the meaning of Section 409A and, notwithstanding anything in the Agreement to the contrary, distributions
upon termination of employment of nonqualified deferred compensation may only be made upon a “separation from service”
as determined under Section 409A and such date shall be the Termination Date for purposes of this Agreement. Each payment under
this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A. In no event may Executive, directly
or indirectly, designate the calendar year of any payment to be made under this Agreement which constitutes a “nonqualified
deferral of compensation” within the meaning of Section 409A and to the extent an amount is payable within a time period,
the time during which such amount is paid shall be in the discretion of the Company.
10.
Merger
Clause
. Effective as of the Effective Date, this Agreement contains the complete,
full, and exclusive understanding of Executive and the Company as to its subject matter and shall, on such date, and supersede
any prior agreement between Executive and the Company
regarding severance benefits. Any
amendments to this Agreement shall be effective and binding on Executive and the Company only if any such amendments are in writing
and signed by both Parties.
11.
Assignment
.
(a) This Agreement is personal to Executive and, without the prior written consent of the Company, shall not be assigned by Executive
otherwise than by will or the laws of descent and distribution, and any assignment in violation of this Agreement shall be void.
(b) This
Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal
or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If Executive should
die while any amounts would still be payable to him or her hereunder if he or she had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or
other designee or, should there be no such designee, to Executive’s estate.
(c) The
Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially
all of the business or assets of the Company (a “
Successor
”) to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would have been required to perform it if no
such succession had taken
place. As used in this Agreement, (i) the term “
Company
” shall mean the Company as hereinbefore defined and
any Successor and any permitted assignee to which this Agreement is assigned and (ii) the term “
Board
” shall
mean the Board as hereinbefore defined and the board of directors or equivalent governing body of any Successor and any permitted
assignee to which this Agreement is assigned.
12.
Dispute
Resolution
. The parties agree that any dispute arising out of or relating to this Agreement
or the formation, breach, termination or validity thereof, will be settled by binding arbitration by a panel of three arbitrators
in accordance with the commercial arbitration rules of the American Arbitration Association. The arbitration proceedings will be
located in Los Angeles County, California. The arbitrators are not empowered to award damages in excess of compensatory damages
and each party irrevocably waives any damages in excess of compensatory damages. Judgment upon any arbitration award may be entered
into any court having jurisdiction thereof and the parties consent to the jurisdiction of any court of competent jurisdiction located
in the State of California.
13.
GOVERNING
LAW
. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN THE STATE OF CALIFORNIA, AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT IN ALL RESPECT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO ITS PRINCIPLES
OF CONFLICTS OF LAW.
14.
Amendment;
No Waiver
. No provision of this Agreement may be amended, modified, waived or discharged
except by a written document signed by Executive and duly authorized officer of the Company. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be considered as a waiver of such party’s rights
or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
No failure or delay by any party in exercising any right or power hereunder will operate as a waiver thereof, nor will any single
or partial exercise of any other right or power. No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party, which are not set forth expressly in this Agreement.
15.
Severability
.
If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable law or public policy,
all other conditions and provisions of this Agreement shall nonetheless remain in full force and effect so long as the economic
and legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any
party. Upon any such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated
to the fullest extent possible.
16.
Survival
.
The rights and obligations of the parties under the provisions of this Agreement that relate to post-termination obligations shall
survive and remain binding and enforceable, notwithstanding the expiration of the term of this Agreement, the termination of Executive’s
employment with the Company for any reason or any settlement of the financial
rights
and obligations arising from Executive’s employment hereunder, to the extent necessary to preserve the intended benefits
of such provisions.
17.
Notices
.
All notices and other communications required or permitted by this Agreement will be made in writing and all such notices and communications
will be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States certified or registered
mail, return receipt requested, postage prepaid, addressed to the Company at its headquarters, and addressed to Executive at his
last address on file with the Company, or to such other address as any party may have furnished to the other in writing in accordance
herewith, except that notices of change of address shall be effective only upon receipt.
18.
Headings
and References
. The headings of this Agreement are inserted for convenience only and neither
constitute a part of this Agreement nor affect in any way the meaning or interpretation of this Agreement. When a reference in
this Agreement is made to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated.
19.
Counterparts
.
This Agreement may be executed in one or more counterparts (including via facsimile), each of which shall be deemed to be an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF
, this Agreement has
been executed by the parties as of the date first written above.
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew J. Ritter
|
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Name:
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Andrew Ritter
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Title:
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President
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Executive
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By:
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/s/ Michael D. Step
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Name:
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Michael D. Step
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Title:
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Chief Executive Officer
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Exhibit 10.5
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
1.
Purposes
of the Plan
. The purposes of this Plan are to attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company’s
business. The Plan permits the grant of Options and Restricted Stock as the Administrator may determine.
2.
Definitions
. As
used herein, the following definitions shall apply:
(a)
“
Administrator
”
means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
(b)
“
Applicable
Laws
” means the requirements relating to the administration of equity compensation plans under U.S. state corporate laws,
U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or
quoted and the applicable laws of any other country or jurisdiction where Awards are granted under the Plan.
(c)
“
Award
”
means, individually or collectively, a grant under the Plan of Options or Restricted Stock.
(d)
“
Award
Agreement
” means the written or electronic agreement setting forth the terms and provisions applicable to each Award
granted under the Plan. The Award Agreement is subject to the terms and conditions of the Plan.
(e)
“
Board
”
means the Board of Directors of the Company.
(f)
“
Change
in Control
” means the occurrence of any of the following events:
(i)
Change
in Ownership of the Company
. A change in the ownership of the Company which occurs on the date that any one person,
or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together
with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company, except that
any change in the ownership of the stock of the Company as a result of a private financing of the Company that is approved by the
Board will not be considered a Change in Control; or
(ii)
Change
in Effective Control of the Company
. If the Company has a class of securities registered pursuant to Section 12
of the Exchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the
Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority
of the members of the Board prior to the date of the appointment or election. For purposes of this clause (ii), if any
Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same
Person will not be considered a Change in Control; or
(iii)
Change
in Ownership of a Substantial Portion of the Company’s Assets. A change in the ownership of a substantial portion
of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period
ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair
market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior
to such acquisition or acquisitions. For purposes of this subsection (iii), gross fair market value means the value
of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated
with such assets.
For purposes of this Section
2(f), persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing,
a transaction shall not be deemed a Change in Control unless the transaction qualifies as a change in control event within the
meaning of Section 409A of the Code, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations
and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance
of doubt, a transaction shall not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s
incorporation, or (ii) its sole purpose is to create a holding company that shall be owned in substantially the same proportions
by the persons who held the Company’s securities immediately before such transaction.
(g)
“
Code
”
means the Internal Revenue Code of 1986, as amended. Any reference to a section of the Code herein shall be a reference
to any successor or amended section of the Code.
(h)
“
Committee
”
means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board, or by the compensation
committee of the Board, in accordance with Section 4 hereof
(i)
“
Common
Stock
” means the Common Stock of the Company.
(j)
“
Company
”
means Ritter Pharmaceuticals, Inc., a Delaware corporation.
(k)
“
Consultant
”
means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(l)
“
Director
”
means a member of the Board.
(m)
“
Disability
”
means total and permanent disability as defined in Section 22(e)(3) of the Code.
(n)
“
Employee
”
means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a
Director nor payment of a
director’s fee by the Company shall be sufficient to constitute “employment” by the Company.
(o)
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended.
(p)
“
Exchange
Program
” means a program under which (i) outstanding Options are surrendered or cancelled in exchange for Options of
the same type (which may have lower or higher exercise prices and different terms), Options of a different type, and/or cash, and/or
(ii) the exercise price of an outstanding Option is reduced. The terms and conditions of any Exchange Program shall
be determined by the Administrator in its sole discretion.
(q)
“
Fair
Market Value
” means, as of any date, the value of Common Stock determined as follows:
(i)
If
the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq
Global Market, the Nasdaq Global Select Market or the Nasdaq Capital Market, its Fair Market Value shall be the closing sales price
for such stock (or, if no closing sales price was reported on that date, as applicable, on the last trading date such closing sales
price was reported) as quoted on such exchange or system on the day of determination, as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii)
If
the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination (or, if no bids and
asks were reported on that date, as applicable, on the last trading date such bids and asks were reported); or
(iii)
In
the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(r)
“
Incentive
Stock Option
” means an Option that by its terms qualifies and is otherwise intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(s)
“
Nonstatutory
Stock Option
” means an Option that by its terms does not qualify or is not intended to qualify as an Incentive Stock
Option.
(t)
“
Option
”
means a stock option granted pursuant to the Plan.
(u)
“
Parent
”
means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(v)
“
Participant
”
means the holder of an outstanding Award.
(w)
“
Plan
”
means this 2008 Stock Plan.
(x)
“
Restricted
Stock
” means Shares issued pursuant to a Restricted Stock award under Section 7 of the Plan, or issued pursuant to the
early exercise of an Option.
(y)
“
Restricted
Stock Purchase Agreement
” means a written or electronic agreement between the Company and the Participant evidencing
the terms and restrictions applying to Shares purchased under a Restricted Stock award. The Restricted Stock Purchase
Agreement is subject to the terms and conditions of the Plan and the notice of grant.
(z)
“
Securities
Act
” means the Securities Act of 1933, as amended.
(aa)
“
Service
Provider
” means an Employee, Director or Consultant.
(bb)
“
Share
”
means a share of the Common Stock, as adjusted in accordance with Section 11 below.
(cc)
“
Subsidiary
”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
3.
Stock
Subject to the Plan
. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares
that may be subject to Awards and sold under the Plan is 500,000 Shares. The Shares may be authorized but unissued,
or reacquired Common Stock.
If an Award expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant to an Exchange Program, the unpurchased Shares
that were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). However,
Shares that have actually been issued under the Plan, upon exercise of an Award, shall not be returned to the Plan and shall not
become available for future distribution under the Plan, except that if unvested Shares of Restricted Stock are repurchased by
the Company at their original purchase price, such Shares shall become available for future grant under the Plan. Notwithstanding
the foregoing and, subject to adjustment provided in Section 11, the maximum number of Shares that may be issued upon the exercise
of Incentive Stock Options shall equal the aggregate Share number stated in the first paragraph of this Section, plus, to the extent
allowable under Section 422 of the Code, any Shares that become available for issuance under the Plan under this second paragraph
of this Section.
4.
Administration
of the Plan
.
(a)
Administrator
. The
Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b)
Powers
of the Administrator
. Subject to the provisions of the Plan and, in the case of a Committee, the specific duties
delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have
the authority in its discretion:
(i)
to
determine the Fair Market Value;
(ii)
to
select the Service Providers to whom Awards may from time to time be granted hereunder;
(iii)
to
determine the number of Shares to be covered by each such Award granted hereunder;
(iv)
to
approve forms of agreement for use under the Plan;
(v)
to
determine the terms and conditions of any Award granted hereunder. Such terms and conditions include, but are not limited
to, the exercise price, the time or times when Awards may be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Award or the Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine;
(vi)
to
institute an Exchange Program;
(vii)
to
prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;
(viii)
to
modify or amend each Award (subject to Section 19(c) of the Plan) including but not limited to the discretionary authority to extend
the post-termination exercise period of Awards and to extend the maximum term of an Option (subject to Section 6(a) regarding Incentive
Stock Options);
(ix)
to
authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Award previously granted
by the Administrator; and
(x)
to
construe and interpret the terms of the Plan and Awards granted pursuant to the Plan.
(c)
Effect
of Administrator’s Decision
. All decisions, determinations and interpretations of the Administrator shall
be final and binding on all Participants.
5.
Eligibility
. Nonstatutory
Stock Options and Restricted Stock may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.
6.
Stock
Options
.
(a)
Term
of Option
. The term of each Option shall be stated in the Award Agreement; provided, however, that the term shall
be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to a
Participant who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Award Agreement.
(b)
Option
Exercise Price and Consideration
.
(i)
Exercise
Price
. The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as
is determined by the Administrator, but shall be subject to the following:
(A)
In
the case of an Incentive Stock Option
a)
granted
to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than one hundred and ten
percent (110%) of the Fair Market Value per Share on the date of grant.
b)
granted
to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(B)
In
the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(C)
Notwithstanding
the foregoing, Options may be granted with a per Share exercise price other than as required above in accordance with and pursuant
to a transaction described in Section 424 of the Code.
(ii)
Forms
of Consideration
. The consideration to be paid for the Shares to be issued upon exercise of an Option, including
the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined
at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note,
to the extent permitted by Applicable Laws, (4) other Shares, provided that such Shares have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such Option shall be exercised and provided that accepting
such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences to the Company,
(5) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan,
(6) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws, or (7)
any combination of the foregoing methods of payment. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
(c)
Exercise
of Option
.
(i)
Procedure
for Exercise; Rights as a Stockholder
. Any Option granted hereunder shall be exercisable according to the terms
hereof at such times and under such conditions as determined by the Administrator and set forth in the Award Agreement. An
Option may not be exercised for a fraction of a Share.
An Option shall be deemed
exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Award Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised,
together with any applicable withholding taxes. Full payment may consist of any consideration and method of payment
authorized by the Administrator and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an
Option shall be issued in the name of the Participant or, if requested by the Participant, in the name of the Participant and his
or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of
a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be
issued) such Shares promptly after the Option is exercised. No adjustment shall be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as provided in Section 11 of the Plan.
Exercise of an Option in
any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
(ii)
Termination
of Relationship as a Service Provider
. If a Participant ceases to be a Service Provider, such Participant may exercise
his or her Option within thirty (30) days of termination, or such longer period of time as specified in the Award Agreement, to
the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option
as set forth in the Award Agreement). Unless the Administrator provides otherwise, if on the date of termination the
Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert
to the Plan. If, after termination, the Participant does not exercise his or her Option within the time specified by
the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(iii)
Disability
of Participant
. If a Participant ceases to be a Service Provider as a result of the Participant’s Disability,
the Participant may exercise his or her Option within six (6) months of termination, or such longer period of time as specified
in the Award Agreement, to the extent the Option is vested on the date of termination (but in no event later than the expiration
of the term of such Option as set forth in the Award Agreement). Unless the Administrator provides otherwise, if on
the date of termination the Participant is not vested as to his or her entire Option, the Shares covered by the unvested portion
of the Option shall revert to the Plan. If, after termination, the Participant does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(iv)
Death
of Participant
. If a Participant dies while a Service Provider, the Option may be exercised within six (6) months
following the Participant’s death, or such longer period of time as specified in the Award Agreement, to the extent that
the Option is vested on the date of death (but in no event later than the expiration of the term of such Option as set forth in
the Award Agreement) by the Participant’s designated beneficiary, provided such beneficiary has been designated prior to
the Participant’s death in a form acceptable to the
Administrator. If
no such beneficiary has been designated by the Participant, then such Option may be exercised by the personal representative of
the Participant’ s estate or by the person(s) to whom the Option is transferred pursuant to the Participant’s will
or in accordance with the laws of descent and distribution. If, at the time of death, the Participant is not vested
as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If
the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(v)
Incentive
Stock Option Limit
. Each Option shall be designated in the Award Agreement as either an Incentive Stock Option or
a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Participant during
any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds one hundred thousand dollars ($100,000),
such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(c)(v), Incentive Stock Options
shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined
as of the time the Option with respect to such Shares is granted.
7.
Restricted
Stock
.
(a)
Rights
to Purchase
. Restricted Stock may be issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it shall offer Restricted
Stock under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid (if any), and
the time within which such person must accept such offer.
(b)
Repurchase
Option
. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company
a repurchase option according to terms as the Administrator determines.
(c)
Terms
. The
term of each Restricted Stock award shall be stated in the Restricted Stock Purchase Agreement; provided, however, that the term
shall be no more than ten (10) years from the date of grant thereof.
(d)
Other
Provisions
. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole discretion.
(e)
Rights
as a Stockholder
. Once the Restricted Stock award is purchased or otherwise issued, the purchaser shall have rights
equivalent to those of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly
authorized transfer agent of the .Company. No adjustment shall be made for a dividend or other right for which the record
date is prior to the date the Restricted Stock is purchased or otherwise issued, except as provided in Section 11 of the Plan.
8.
Tax
Withholding
. Prior to the delivery of any Shares pursuant to an Award (or exercise thereof), the Company shall have
the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, local, foreign or other taxes (including the Participant’s FICA obligation) required to be withheld with
respect to such Award (or exercise thereof). The Administrator, in its sole discretion and pursuant to such procedures
as it may specify from time to time, shall determine in what manner it shall allow a Participant to satisfy such tax withholding
obligation and may permit the Participant to satisfy such tax withholding obligation, in whole or in part by one (1) or more of
the following: (a) paying cash (or by check), (b) electing to have the Company withhold otherwise deliverable Shares having a Fair
Market Value equal to the minimum amount statutorily required to be withheld, or (c) selling a sufficient number of such Shares
otherwise deliverable to a Participant through such means as the Company may determine in its sole discretion (whether through
a broker or otherwise) equal to the minimum amount statutorily required to be withheld.
9.
Limited
Transferability of Awards
. Unless determined otherwise by the Administrator, Awards may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or the laws of descent and distribution, and may be
exercised during the lifetime of the Participant, only by the Participant. If the Administrator in its sole discretion
makes an Award transferable, such Award may only be transferred (i) by will, (ii) by the laws of descent and distribution, or (iii)
as permitted by Rule 701 of the Securities Act.
10.
Leaves
of Absence; Transfers
.
(a)
Unless
the Administrator provides otherwise, or except as otherwise required by Applicable Laws, vesting of Awards granted hereunder shall
be suspended during any unpaid leave of absence.
(b)
A
Service Provider shall not cease to be a Service Provider in the case of (i) any leave of absence approved by the Company, or (ii)
transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.
(c)
For
purposes of Incentive Stock Options, no such leave may exceed three (3) months, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company
is not so guaranteed, then six (6) months following the first (1st) day of such leave, any Incentive Stock Option held by the Participant
shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
11.
Adjustments;
Dissolution or Liquidation; Merger or Change in Control
.
(a)
Adjustments
. In
the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off; combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs,
the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made
available under the Plan,
shall adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares
covered by each outstanding Award; provided, however, that the Administrator shall make such adjustments to the extent required
by Section 25102(o) of the California Corporations Code.
(b)
Dissolution
or Liquidation
. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall
notify each Participant as soon as practicable prior to the effective date of such proposed transaction. To the extent
it has not been previously exercised, an Award shall terminate immediately prior to the consummation of such proposed action.
(c)
Merger
or Change in Control
. In the event of a merger or Change in Control, each outstanding Award shall be treated as
the Administrator determines, including, without limitation, that each Award be assumed or an equivalent award substituted by the
successor corporation or a Parent or Subsidiary of the successor corporation. The Administrator shall not be required
to treat all Awards similarly in the transaction.
Notwithstanding the foregoing,
in the event of a Change in Control in which the successor corporation does not assume or substitute for the Award, the Participant
shall fully vest in and have the right to exercise his or her outstanding Awards, including Shares as to which such Award would
not otherwise be vested or exercisable, and restrictions on all of the Participant’s Restricted Stock shall lapse. In
addition, if an Award is not assumed or substituted in the event of a merger or Change in Control, the Administrator shall notify
the Participant in writing or electronically that the Award shall be fully vested and exercisable for a period of time determined
by the Administrator in its sole discretion, and any Award not assumed or substituted for shall terminate upon the expiration of
such period for no consideration, unless otherwise determined by the Administrator.
For the purposes of this
Section 11(c), the Award shall be considered assumed if, following the merger or Change in Control, the option or right confers
the right to purchase or receive, for each Share subject to the Award immediately prior to the merger or Change in Control, the
consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of
Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration
received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator
may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Award,
for each Share subject to the Award, to be solely common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of common stock in the merger or Change in Control.
12.
Time
of Granting Awards
. The date of grant of an Award shall, for all purposes, be the date on which the Administrator
makes the determination granting such Award, or such later date as is determined by the Administrator. Notice of the
determination shall be given to each Service Provider to whom an Award is so granted within a reasonable time after the date of
such grant.
13.
No
Effect on Employment or Service
. Neither the Plan nor any Award shall confer upon any participant any right with
respect to continuing the Participant’s relationship as a Service Provider with the Company, nor shall it interfere in any
way with his or her right or the Company’s right to terminate such relationship at any time, with or without cause, and with
or without notice.
14.
Conditions
Upon Issuance of Shares
.
(a)
Legal
Compliance
. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and
the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(b)
Investment
Representations
. As a condition to the exercise of an Award, the Administrator may in its discretion require the
person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only
for investment and without any present intention to sell or distribute such Shares.
15.
Inability
to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
16.
Reservation
of Shares
. The Company, during the term of this Plan, shall at all times reserve and keep available such number
of Shares as shall be sufficient to satisfy the requirements of the Plan.
17.
Stockholder
Approval
. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after
the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under Applicable
Laws.
18.
Term
of Plan
. Subject to stockholder approval in accordance with Section 17, the Plan shall become effective upon its
adoption by the Board. Unless sooner terminated under Section 19, it shall continue in effect for a term of ten (10)
years from the later of (a) the effective date of the Plan, or (b) the earlier of the most recent Board or stockholder approval
of an increase in the number of Shares reserved for issuance under the Plan.
19.
Amendment
and Termination of the Plan
.
(a)
Amendment
and Termination
. The Board may at any time amend, alter, suspend or terminate the Plan.
(b)
Stockholder
Approval
. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.
(c)
Effect
of Amendment or Termination
. No amendment, alteration, suspension or termination of the Plan shall impair the rights
of any Participant, unless mutually
agreed otherwise between
the Participant and the Administrator, which agreement must be in writing (which may include e-mail) and signed by the Participant
and the Company. Termination of the Plan shall not affect the Administrator’s ability to exercise the powers granted
to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
Exhibit 10.6
RITTER PHARMACEUTICALS, INC.
2009 STOCK PLAN
1.
Purposes of the Plan
. The
purposes of this Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide
additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted
under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2.
Definitions
. As
used herein, the following definitions shall apply:
(a) “
Administrator
”
means the Board or any of its Committees as shall be administering the Plan in accordance with Section 4 hereof.
(b) “
Applicable
Laws
” means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted
and the applicable laws of any other country or jurisdiction where Options or Stock Purchase Rights are granted under the Plan.
(c) “
Board
”
means the Board of Directors of the Company.
(d) “
Change
in Control
” means the occurrence of any of the following events:
(i) Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner”
(as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent
(50%) or more of the total voting power represented by the Company’s then outstanding voting securities; or
(ii) The
consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets; or
(iii) The
consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of
the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately
after such merger or consolidation. Notwithstanding the foregoing, only a Change in Control event that also qualifies as a "change
in the ownership" or a "change in the effective control" of the Company or a "change in the ownership of a
substantial portion" of the assets of the Company within the meaning of Treasury Regulation Section 1.409A-3(i)(5) shall be
recognized as a Change of Control for purposes of triggering exercise, distribution or settlement rights under any Option or Stock
Purchase Right granted under this Plan that is subject to Code Section 409A.
(e) “
Code
”
means the Internal Revenue Code of 1986, as amended.
(f) “
Committee
”
means a committee of Directors or of other individuals satisfying Applicable Laws appointed by the Board in accordance with Section 4
hereof.
(g) “
Common
Stock
” means the Common Stock of the Company.
(h) “
Company
”
means Ritter Pharmaceuticals, Inc., a
Delaware corporation.
(i) “
Consultant
”
means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(j) “
Director
”
means a member of the Board.
(k) “
Disability
”
means total and permanent disability as defined in Section 22(e)(3) of the Code; provided, however, that for purposes of exercising
any Option or Stock Purchase Right which is subject to Section 409A of the Code, "Disability" means that the subject
individual is considered "disabled" within the meaning of Treasury Regulation Sections 1.409A-3(a)(2) and (i)(4), as
determined by the Administrator in its sole discretion.
(l) “
Employee
”
means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute “employment”
by the Company.
(m) “
Exchange
Act
” means the Securities Exchange Act of 1934, as amended.
(n) “
Fair
Market Value
” means, as of any date, the value of Common Stock determined as follows:
(i) If
the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination,
as reported in
The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) If
the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination; or
(iii) In
the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator by the reasonable application of a reasonable valuation method in accordance with Treasury Regulation Section 1.409A-1(b)(5)(iv)(B).
(o)
“
Incentive Stock Option
” means an Option intended to qualify as an incentive stock option within the meaning
of Section 422 of the Code.
(p)
“
Nonstatutory Stock Option
” means an Option not intended to qualify as an Incentive Stock Option.
(q) “
Option
”
means a stock option granted pursuant to the Plan.
(r) “
Option
Agreement
” means a written or electronic agreement between the Company and an Optionee evidencing the terms and conditions
of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan.
(s) “
Optioned Stock
”
means the Common Stock subject to an Option or a Stock Purchase Right.
(t) “
Optionee
”
means the holder of an outstanding Option or Stock Purchase Right granted under the Plan.
(u) “
Parent
”
means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(v) “
Plan
”
means this 2009 Stock Plan.
(w) “
Restricted
Stock
” means Shares issued pursuant to a Stock Purchase Right or Shares of restricted stock issued pursuant to an Option.
(x) “
Restricted
Stock Purchase Agreement
” means a written agreement between the Company and the Optionee evidencing the terms and restrictions
applying to Shares purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and
conditions of the Plan and the notice of grant.
(y) “
Securities
Act”
means the Securities Act of 1933, as amended.
(z)
“
Service Provider
” means an Employee, Director, Consultant or other permitted recipient under Rule 701 under
the Securities Act.
(aa) “
Share
”
means a share of the Common Stock, as adjusted in accordance with Section 13 below.
(bb) “
Stock
Purchase Right
” means a right to purchase Common Stock pursuant to Section 11 below.
(cc) “
Subsidiary
”
means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
3.
Stock Subject to the Plan
. Subject
to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares that may be subject to option and sold
under the Plan is Five Hundred Thousand (500,000) Shares. The Shares may be authorized but unissued, or reacquired Common Stock.
If an Option or Stock Purchase
Right expires or becomes unexercisable without having been exercised in full, the unpurchased Shares that were subject thereto
shall become
available for future grant
or sale under the Plan (unless the Plan has terminated). However, Shares that have actually been issued under the Plan, upon exercise
of either an Option or Stock Purchase Right, shall not be returned to the Plan and shall not become available for future distribution
under the Plan, except that if unvested Shares of Restricted Stock are repurchased by the Company at their original purchase price,
such Shares shall become available for future grant under the Plan.
4.
Administration of the Plan
.
(a)
Administrator
. The
Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with
Applicable Laws.
(b)
Powers of the Administrator
. Subject
to the provisions of the Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and
subject to the approval of any relevant authorities, the Administrator shall have the authority in its sole discretion:
(i) to
determine the Fair Market Value;
(ii) to
select the Service Providers to whom Options and Stock Purchase Rights may from time to time be granted hereunder;
(iii) to
determine the number of Shares to be covered by each such award granted hereunder;
(iv) to
approve forms of agreement for use under the Plan;
(v) to
determine the terms and conditions of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include,
but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the Common Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to
prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;
(vii) to
allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the minimum amount required
to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable; and
(viii) to
construe and interpret the terms of the Plan and Options granted pursuant to the Plan.
(c)
Effect of Administrator's Decision
.
All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.
5.
Eligibility
. Nonstatutory
Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees.
6.
Limitations
.
(a)
Incentive
Stock Option Limit
. Each Option shall be designated in the Option Agreement as either an Incentive Stock Option
or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of
the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar
year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 6(a): (x) Incentive Stock Options shall be taken into account in the order
in which they were granted and (y) the Fair Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(b)
At-Will
Employment
. Neither the Plan nor any Option or Stock Purchase Right shall confer upon any Optionee any right with
respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall it interfere in any way with
his or her right or the Company's right to terminate such relationship at any time, with or without cause, and with or without
notice.
7.
Term of Plan
. Subject
to stockholder approval in accordance with Section 19, the Plan shall become effective upon its adoption by the Board. Unless sooner
terminated under Section 15, it shall continue in effect for a term of ten (10) years from the later of (i) the effective
date of the Plan, or (ii) the earlier of the Board approval or stockholder approval of the most recent amendment to Plan involving
an increase in the number of Shares reserved for issuance under the Plan.
8.
Term
of Option
. The term of each Option shall be stated in the Option Agreement; provided, however, that the term shall
be no more than ten (10) years from the date of grant thereof. In the case of an Incentive Stock Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant
or such shorter term as may be provided in the Option Agreement.
9.
Option
Exercise Price and Consideration
.
(a)
Exercise
Price
. The per share exercise price for the Shares to be issued upon exercise of an Option shall be such price as
is determined by the Administrator, but shall be subject to the following:
(i) In
the case of an Incentive Stock Option
(A)
granted to an Employee who, at the time of grant of such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the exercise price shall be no less than one hundred
ten percent (110%) of the Fair Market Value per Share on the date of grant.
(B) granted
to any other Employee, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In
the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than one hundred percent (100%) of the Fair
Market Value per Share on the date of grant.
(b) Notwithstanding
the foregoing, Options may be granted with a per Share exercise price other than as required above pursuant to a merger or other
corporate transaction, or as otherwise determined by the Board provided, however, that for any Nonstatutory Stock Option which
is subject to Code Section 409A because it is granted with a per Share exercise price that is less than one hundred percent (100%)
of the Fair Market Value per Share as of the date of grant, the Option Agreement shall contain such provisions as necessary to
comply with Code Section 409A.
(c)
Forms
of Consideration
. The consideration to be paid for the Shares to be issued upon exercise of an Option, including
the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined
at the time of grant). Such consideration may consist of, without limitation, (1) cash, (2) check, (3) promissory note,
(4) other Shares, provided Shares acquired directly from the Company (x) have been owned by the Optionee for more than six
(6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise
price of the Shares as to which such Option shall be exercised, (5) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, or (6) any combination of the foregoing methods of
payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance
of such consideration may be reasonably expected to benefit the Company, and what form of consideration is permitted by law.
10.
Exercise of Option
.
(a)
Procedure for Exercise;
Rights as a Stockholder
. Any Option granted hereunder shall be exercisable according to the terms hereof at such
times and under such conditions as determined by the Administrator and set forth in the Option Agreement. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed
exercised when the Company receives (i) written or electronic notice of exercise (in accordance with the Option Agreement)
from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is
exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by
the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made
for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13
of the Plan.
Exercise of an Option in
any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is exercised.
(b)
Termination of
Relationship as a Service Provider
. If an Optionee ceases to be a Service Provider, such Optionee may exercise his
or her Option within thirty (30) days of termination, or such longer period of time as specified in the Option Agreement, to the
extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of the Option
as set forth in the Option Agreement, and in the case of an Incentive Stock Option, in no event later than the earlier of three (3)
months after the date of termination and the expiration of the term of the Option as set forth in the Option Agreement). If, on
the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion
of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time
specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(c)
Disability
of Optionee
. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee
may exercise his or her Option within six (6) months of termination, or such longer period of time as specified in the Option Agreement,
to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option
as set forth in the Option Agreement, and in the case of an Incentive Stock Option, in no event later than the earlier of one (1)
year after the date of Termination and the expiration of the term of the Option as set forth in the Option Agreement). If, on the
date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does
not exercise his or her Option
within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d)
Death of Optionee
. If
an Optionee dies while a Service Provider, the Option may be exercised within six (6) months following Optionee’s death,
or such longer period of time as specified in the Option Agreement, to the extent that the Option is vested on the date of death
(but in no event later than the expiration of the term of such Option as set forth in the Option Agreement) by the Optionee’s
designated beneficiary, provided such beneficiary has been designated prior to Optionee’s death in a form acceptable to the
Administrator. If no such beneficiary has been designated by the Optionee, then such Option may be exercised by the personal representative
of the Optionee’s estate or by the person(s) to whom the Option is transferred pursuant to the Optionee’s will or in
accordance with the laws of descent and distribution. If, at the time of death, the Optionee is not vested as to his or her entire
Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the
Plan.
(e)
Leaves
of Absence
.
(i) Unless
the Administrator provides otherwise, vesting of Options granted hereunder to employees, officers and Directors shall be suspended
during any unpaid leave of absence.
(ii) A
Service Provider who is an Employee shall not cease to be an Employee in the case of (A) any leave of absence approved by
the Company or (B) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor.
(iii) For
purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed,
then following the 91st day of such leave, any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive
Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
11.
Stock
Purchase Rights
.
(a)
Rights
to Purchase
. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted
under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase
Rights under the Plan, it shall advise the offeree in writing or electronically of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time
within which such person must accept such offer. The terms of the offer shall comply in all respects with Section 260.140.42 of
Title 10 of the California Code of Regulations. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement
in the form determined by the Administrator.
(b)
Repurchase
Option
. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company
a repurchase option exercisable within ninety (90) days of the voluntary or involuntary termination of the purchaser’s service
with the Company for any reason (including death or disability). The purchase price for Shares repurchased pursuant to the Restricted
Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness
of the purchaser to the Company. The repurchase option shall lapse at such rate as the Administrator may determine.
(c)
Other
Provisions
. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Administrator in its sole discretion. If the price to be paid and any other
terms cause the Stock Purchase Right to be subject to Code Section 409A, then the applicable Restricted Stock Purchase Agreement
shall comply with all applicable requirement of Code Section 409A, including, without limitation, permissible distribution/settlement
events or dates, proper time and method of settlement, proper timing of deferral and exercise/settlement elections, and other applicable
provisions.
(d)
Rights
as a Stockholder
. Once the Stock Purchase Right is exercised, the purchaser shall have rights equivalent to those
of a stockholder and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer
agent of the Company. No adjustment shall be made for a dividend or other right for which the record date is prior to the date
the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan.
12.
Limited
Transferability of Options and Stock Purchase Rights
. Unless determined otherwise by the Administrator,
Options and Stock Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner,
and may be exercised only by the Optionee during the lifetime of the Optionee. If the Administrator, in its sole discretion, makes
an Incentive Stock Option transferable, such Incentive Stock Option may only be transferred (i) by will, (ii) by the laws of descent
and distribution, or (iii) to a revocable trust. If the Administrator, in its sole discretion, makes a Nonstatutory Stock Option
or Stock Purchase Right transferable, such Nonstatutory Stock Option may only be transferred (i) by will, or (ii) by the laws of
descent and distribution, (iii) to a revocable trust, or (iv) to Family Members of the Optionee. For purposes of this Section 12,
“Family Member” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse,
registered domestic partner,
sibling, niece, nephew, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing
the employee's household (other than a tenant or employee), a trust in which these persons have more than fifty percent of the
beneficial interest, a foundation in which these persons (or the employee) control the management of assets, and any other entity
in which these persons (or the employee) own more than fifty percent of the voting interests
13.
Adjustments;
Dissolution or Liquidation; Merger or Change in Control
.
(a)
Adjustments
. In
the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange
of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs,
the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available
under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or
the number, class, and price of Shares covered by each outstanding Option or Stock Purchase Right; provided, however, that the
Administrator shall make such adjustments to the extent required by Section 25102(o) of the California Corporations Code.
(b)
Dissolution
or Liquidation
. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. To the extent it has not
been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed
action.
(c)
Merger
or Change in Control
. In the event of a merger of the Company with or into another corporation, or a Change in Control,
each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option substituted by the successor corporation
or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation in a merger or Change in Control
refuses to assume or substitute for the Option or Stock Purchase Right, then the Optionee shall fully vest in and have the right
to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise
be vested or exercisable; provided, however, that such exercise shall only be permitted as and to the extent it complies with Code
Section 409A or does not cause the Option or Stock Purchase Right to cease to be exempt from that statute, notwithstanding any
provisions of this Section 13(c) to the contrary. If an Option or Stock Purchase Right becomes fully vested and exercisable in
lieu of assumption or substitution in the event of a merger or Change in Control, the Administrator shall notify the Optionee in
writing or electronically that this Option or Stock Purchase Right shall be fully exercisable for a period of fifteen (15) days
from the date of such notice, and the Option or Stock Purchase Right shall terminate upon expiration of such period. For the purposes
of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or Change in Control,
the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase
Right immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property)
received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction
(and if holders were
offered a choice of consideration,
the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration
received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator
may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option
or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock
of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of common
stock in the merger or Change in Control.
14.
Time of Granting Options
and Stock Purchase Rights
. The date of grant of an Option or Stock Purchase Right shall, for all purposes, be the
date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such later date as is
determined by the Administrator. Notice of the determination shall be given to each Service Provider to whom an Option or Stock
Purchase Right is so granted within a reasonable time after the date of such grant.
15.
Amendment and Termination of the Plan
.
(a)
Amendment
and Termination
. The Board may at any time amend, alter, suspend or terminate the Plan.
(b)
Stockholder
Approval
. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable
to comply with Applicable Laws.
(c)
Effect of Amendment or Termination
. No
amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise
between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination
of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16.
Conditions Upon Issuance of Shares
.
(a)
Legal
Compliance
. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option
and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b)
Investment
Representations
. As a condition to the exercise of an Option, the Administrator may require the person exercising
such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation
is required.
17.
Inability
to Obtain Authority
. The inability of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company
of any liability
in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
18.
Reservation of Shares
. The
Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
19.
Stockholder
Approval
. The Plan shall be subject to approval by the stockholders of the Company prior to the later of (i) twelve (12)
months after the date the Plan is adopted or (ii) the date of first grant of an Option or Stock Purchase Right to a Service Provider
in California. Such stockholder approval shall be obtained in the degree and manner required under Applicable Laws.
20.
409A
Compliance
. The Company intends that this Plan shall comply with Code Section 409A to the extent that statute applies
to any Option or Stock Purchase Right granted hereunder, but nothing in this Plan or in any Option Agreement or Restricted Stock
Purchase Agreement governed by this Plan shall constitute a guarantee of such compliance nor of any particular tax treatment of
any such award. The Company, the Board (and its members individually), the Administrator (and its members individually), and all
shareholders, officers, parents, subsidiaries, affiliates, successors, assigns and representatives of the Company shall have no
liability to any person claiming any interest in or rights under any Option or Stock Purchase Right granted under the Plan for
any taxes, interest, penalties or damages resulting from any non-compliance with Codes Section 409A, nor for any cost or expense
(including the fees of attorneys or other professional advisors) incurred by any such person in connection with any determination
whether a violation of Code Section 409A occurred or in connection with contesting, paying or settling any claim relating to such
a determination or violation.
Exhibit 10.8
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Michael D. Step
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Exercise Price per Share:
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$0.82
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Total Number of Shares Granted:
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A number of shares of the Common Stock of the Company as will, together with the 4,622,741 shares subject to the option granted to Participant on the same date as this Option, represent in the aggregate 7.5% of the shares of Common Stock of the Company deemed to be outstanding on a fully-diluted basis as of the date of the initial closing of a transaction which qualifies as Qualified Financing (as defined below), after giving effect to (i) the issuance of the shares issued in the Qualified Financing, (ii) the issuance of this Option and (iii) any adjustments otherwise provided hereunder (the “Shares”).
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
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This
Option shall be exercisable only if, on or after September 1, 2014 and on or before October 1, 2015, the Company has raised in
the aggregate a minimum of $15,000,000 in one or more private and/or public offerings (a “Qualified Financing”).
If the Company does not close a Qualified Financing on or before October 1, 2015, this Option will
terminate in its entirety and be
of no further
force or effect.
In the event the Option becomes exercisable as provided in the first sentence
of this paragraph, then, as of the date that this Option becomes exercisable, this Option shall be immediately exercisable in full,
with 75% of the Shares to be subject to a right of repurchase by the Company upon Participant’s ceasing to be a Service Provider
for any reason. Such right of repurchase will lapse with respect to 1/36th of the Shares subject to the right of repurchase on
the first day of each month following the date on which the Option first becomes exercisable, subject to Participant continuing
to be a Service Provider through each such date. Notwithstanding the foregoing, the right of repurchase shall expire in full with
respect to all of the shares of Common Stock then subject to the right of repurchase upon the first to occur of any of the events
set forth in Section 3 (Termination Without Cause or by Executive With Good Reason) and Section 4 (Change in Control Termination)
of that certain Executive Severance & Change in Control Agreement by and between the Company and Participant dated as of December
2, 2014.
Termination Period:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice and restricted stock purchase agreement in
the form attached as
Exhibit A
(the “Exercise Notice”) or in a manner and pursuant to such procedures as the
Administrator may determine, which shall state the election to exercise the Option, the number of Shares with respect
to which the Option is
being exercised, and such other representations and agreements as
may be required by the Company. The Exercise Notice shall
be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares, together with any applicable tax withholding.
This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by the
aggregate Exercise Price, together with any applicable tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant shall, if required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the date of exercise, and (iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting
such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF (AND THE LAPSE OF THE COMPANY’S RIGHT OF REPURCHASE) IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS
A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S
RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Michael D. Step
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/s/ Andrew J. Ritter
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Signature
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By
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Michael D. Step
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Andrew J. Ritter
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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President
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK
PURCHASE AGREEMENT
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
Of
these Shares, Participant has elected to purchase _______________ Shares as to which the right of repurchase under the Vesting
Schedule set forth in the Notice of Stock Option Grant has lapsed as of the date hereof (the “Vested Shares”) and _____________
Shares as to which the right of repurchase under the Vesting Schedule set forth in the Notice of Stock Option Grant has not yet
lapsed (the “Unvested Shares”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Limitations
on Transfer
. In addition to any other limitation on transfer created by applicable securities laws, Participant shall not assign,
encumber or dispose of any interest in any Shares that are subject to the Company’s Repurchase Option (as defined below).
After any Shares have been released from such Repurchase Option, Participant shall not assign, encumber or dispose of any interest
in such Shares except in compliance with the provisions of Section 5(b) below and applicable securities laws.
(a)
Repurchase
Option
.
(1) Subject
to termination of the Company’s Repurchase Option as provided in the Vesting Schedule specified in the Notice of Stock Option
Grant, in the event Participant is no longer a Service Provider for any reason (including death or disability), the Company shall
upon the date of such termination (the “Termination Date”) have an irrevocable, exclusive option for a period of ninety
(90) days from such date to repurchase all or any portion of the Shares held by Participant as of the Termination Date as to which
the right of repurchase set forth in the Vesting Schedule has not yet lapsed (the “Repurchase Option”) at the original
purchase price per Share specified in the Notice of Stock Option Grant (adjusted for any stock splits, stock dividends and the
like).
(2) Unless
the Company notifies Participant within ninety (90) days from the Termination Date that it does not intend to exercise its Repurchase
Option with respect to some or all of the Shares then subject thereto, the Repurchase Option shall be deemed automatically exercised
by the Company as of the ninetieth (90
th
) day following such termination, provided that the Company may notify Participant
that it is exercising its Repurchase Option as of a date prior to such ninetieth (90
th
) day. Unless Participant is otherwise
notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as
to some or all of the Shares to which it applies at the time of termination, execution of this Agreement by Participant constitutes
written notice to Participant of the Company’s intention to exercise its Repurchase Option with respect to all Shares to
which such Repurchase Option applies. The Company, at its choice, may satisfy its payment obligation to Participant with respect
to exercise of the Repurchase Option by either (A) delivering a check to Participant in the amount of the purchase price for
the Shares being repurchased, or (B) in the event Participant is indebted to the Company, canceling an amount of such indebtedness
equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined
payment and cancellation of indebtedness equals such purchase price. In the event of any deemed automatic exercise of the Repurchase
Option pursuant to this Section 3(a)(2) in which Participant is indebted to the Company, such indebtedness equal to the purchase
price of the Shares being repurchased shall be deemed automatically canceled as of the ninetieth (90
th
) day following
the Termination Date unless the Company otherwise satisfies its payment obligations. As a result of any repurchase of Shares pursuant
to this Section 5(a), the Company shall become the legal and beneficial owner of the Shares being repurchased and shall have all
rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Participant.
(3) Four
Million Two Hundred Thirty-Seven Thousand Five Hundred Thirteen (4,237,513) shares of the Shares covered by the Option shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting
Schedule set forth in the Notice of Stock Option Grant until all Shares are released from the Repurchase Option in accordance therewith.
Fractional shares shall be rounded to the nearest whole share.
(b)
Right
of First Refusal
. As to any Shares as to which the Company’s Repurchase Option has lapsed and before
any
Shares such held by Participant or any transferee
(either
being sometimes referred to herein as
the “Holder”) may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall
have a right of first refusal to purchase the Shares
on the terms and conditions set forth in this Section 5(b) (the “
Right of First Refusal
”)
.
(1)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the
Company or its assignee(s).
(2)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(3)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(4)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(5)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(6)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5(b) notwithstanding, the transfer of any
or all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit
of Participant’s immediate family shall be exempt from the provisions of this Section 5(b). “Immediate Family”
as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 5(b), and there shall
be no further transfer of such Shares except in accordance with the terms of this Section 5.
(c)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded. The Company’s Repurchase Option shall terminate as provided in the Vesting Schedule
in the Notice of Stock Option Grant.
6.
Escrow
of Unvested Shares
. For purposes of facilitating the enforcement of the provisions of Section 5(a) above, Participant shall,
if requested by the Company within five (5) days following the exercise of the Option for any Unvested Shares, upon receipt of
the certificate(s) for the Shares subject to the Repurchase Option, deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed by Participant and by Participant’s spouse
(if required for transfer), in blank, to the Secretary of the Company, or the Secretary’s designee, to hold such certificate(s)
and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases
as are in accordance with the terms of this Agreement. Participant hereby acknowledges that the Secretary of the Company, or the
Secretary’s designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make
this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Participant agrees that said
escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine and may resign at any time. Participant agrees that if the
Secretary of the Company, or the Secretary’s designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement.
7.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
8.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, RIGHTS OF REPURCHASE AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHTS OF REPURCHASE AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
9.
Section
83(b) Election
. Participant understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the “Code”),
taxes as ordinary income for a Nonstatutory Stock Option and as alternative minimum taxable income for an Incentive Stock Option
the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on
the Shares lapse. In this context, “restriction” means the right of the Company to buy back the Shares pursuant to
the Repurchase Option set forth in Section 5(a) of this Agreement. Participant understands that Participant may elect to be taxed
at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section
83(b) (an “83(b) Election”) of the Code with the Internal Revenue Service
within thirty (30) days
from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the
amount paid for the Shares, the election must be made to avoid income and alternative minimum tax treatment under Section 83(a)
in the future. Participant understands that failure to file such an election in a timely manner may result in adverse tax consequences
for Participant. Participant further understands that an additional copy of such election form should be filed with his federal
income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing
is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and
does not purport to be complete. Participant further acknowledges that the Company has directed Participant to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which
Participant may reside, and the tax consequences of Participant’s death.
10.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
11.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
12.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
13.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that
certain Exercise Notice and Restricted Stock Purchase Agreement between the undersigned (“
Participant
”) and
Ritter Pharmaceuticals, Inc. (the “
Company
”) dated _______________, ____ (the “
Agreement
”),
Participant hereby sells, assigns and transfers unto the Company _________________________________ (________) shares of the Common
Stock of the Company, standing in Participant’s name on the books of the Company and represented by Certificate No. ____,
and does hereby irrevocably constitute and appoint ________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE ATTACHMENTS THERETO.
Dated: _____________________
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Signature:
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Michael D. Step
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Spouse of Michael D. Step (if applicable)
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Instruction: Please do not fill in any blanks other than
the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option set forth in the
Agreement without requiring additional signatures on the part of Participant.
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned (which term includes the
undersigned’s spouse), a purchaser of ___________ shares of Common Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation
(the “
Company
”) by exercise of an option (the “
Option
”) granted pursuant to the Company’s
2008 Stock Plan (the “
Plan
”), hereby states as follows:
1. The
undersigned acknowledges receipt of a copy of the Plan relating to the offering of such shares. The undersigned has carefully reviewed
the Plan and the option agreement pursuant to which the Option was granted.
2. The
undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has
been fully advised by, the undersigned’s own tax advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (the “
Code
”) and pursuant to the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not
to consult such a tax advisor.
3. The
undersigned hereby states that the undersigned has decided [check as applicable]:
(a) ____ to make an election pursuant
to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned’s executed Exercise Notice
and Restricted Stock Purchase Agreement, an executed form entitled “Election Under Section 83(b) of the Internal Revenue
Code of 1986;” or
(b) ____ not to make an election
pursuant to Section 83(b) of the Code.
4. Neither
the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned’s purchase of shares under the Plan or of the making or failure to make
an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
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Date:
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Michael D. Step
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Date:
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Spouse of Michael D. Step
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ATTACHMENT C
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects,
pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer’s gross income or alternative minimum taxable
income, as applicable, for the current taxable year, the amount of any income that may be taxable to taxpayer in connection with
taxpayer’s receipt of the property described below:
1. The
name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER: Michael D. Step
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The
property with respect to which the election is made is described as follows:
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______________ shares of the Common Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”).
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3. The
date on which the property was transferred is: _______________
4. The
property is subject to the following restrictions:
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Repurchase option at cost in favor of the Company upon termination of taxpayer’s employment or consulting relationship.
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5. The
Fair Market Value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $____________
6. The
amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned’s receipt of the above-described property.
The transferee of such property is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may
not be revoked except with the consent of the Commissioner
.
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Dated: ____________
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Michael D. Step
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Dated: ____________
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Spouse of
Michael D. Step
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RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt
of a photocopy of Certificate No. ______ for ________ shares of Common Stock of Ritter Pharmaceuticals, Inc. (the “
Company
”).
The undersigned further acknowledges that
the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Exercise Notice and Restricted
Stock Purchase Agreement Participant has previously entered into with the Company. As escrow holder, the Secretary of the Company,
or his or her designee, holds the original of the aforementioned certificate issued in the undersigned’s name.
Dated: _______________
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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MICHAEL D. STEP
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding specified limitations, (3) the resale being made in an unsolicited
“broker’s
transaction”, transactions directly with a “market maker” or “riskless principal transactions” (as
those terms are defined under the Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.9
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Michael D. Step
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Exercise Price per Share:
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$0.82
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Total Number of Shares Granted:
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4,622,741 (the “Shares”)
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Total Exercise Price:
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$3,790,647.62
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
This Option shall be
immediately exercisable, in whole or in part, with 4,237,513 of the Shares initially covered hereby subject to a right of repurchase
in favor of the Company. Such right of repurchase shall lapse as to 1/44
th
of the Shares subject to the right of repurchase
on a monthly basis on the first day of each month after the date hereof, commencing with January 1, 2015, subject to Participant
continuing to be a Service Provider through each such date. Notwithstanding the foregoing, the right of repurchase shall expire
in full with respect to all of the shares of Common Stock then subject to the right of repurchase upon the first to occur of any
of the events set forth in Section 3 (Termination Without Cause or by Executive With Good Reason) and Section 4 (Change in Control
Termination) of that certain Executive Severance & Change in Control Agreement by and between the Company and Participant dated
as of December 2, 2014.
Termination Period:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice and restricted stock purchase agreement in
the form attached as
Exhibit A
(the “Exercise Notice”) or in a manner and pursuant to such procedures as the
Administrator may determine, which shall state the election to exercise the Option, the number of Shares with respect to which
the Option is being exercised, and such other representations and agreements as
may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares, together with any applicable
tax withholding. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price, together with any applicable tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant shall, if required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the date of exercise, and (iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting
such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that
was less than the Fair
Market Value of a Share on the date of grant, Participant shall be solely responsible for Participant’s costs related to
such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF (AND THE LAPSE OF THE COMPANY’S RIGHT OF REPURCHASE) IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS
A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S
RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Michael D. Step
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/s/ Andrew J. Ritter
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Signature
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By
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Michael D. Step
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Andrew J. Ritter
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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President
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK
PURCHASE AGREEMENT
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
Of
these Shares, Participant has elected to purchase _______________ Shares as to which the right of repurchase under the Vesting
Schedule set forth in the Notice of Stock Option Grant has lapsed as of the date hereof (the “Vested Shares”) and _____________
Shares as to which the right of repurchase under the Vesting Schedule set forth in the Notice of Stock Option Grant has not yet
lapsed (the “Unvested Shares”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Limitations
on Transfer
. In addition to any other limitation on transfer created by applicable securities laws, Participant shall not assign,
encumber or dispose of any interest in any Shares that are subject to the Company’s Repurchase Option (as defined below).
After any Shares have been released from such Repurchase Option, Participant shall not assign, encumber or dispose of any interest
in such Shares except in compliance with the provisions of Section 5(b) below and applicable securities laws.
(a)
Repurchase
Option
.
(1) Subject
to termination of the Company’s Repurchase Option as provided in the Vesting Schedule specified in the Notice of Stock Option
Grant, in the event Participant is no longer a Service Provider for any reason (including death or disability), the Company shall
upon the date of such termination (the “Termination Date”) have an irrevocable, exclusive option for a period of ninety
(90) days from such date to repurchase all or any portion of the Shares held by Participant as of the Termination Date as to which
the right of repurchase set forth in the Vesting Schedule has not yet lapsed (the “Repurchase Option”) at the original
purchase price per Share specified in the Notice of Stock Option Grant (adjusted for any stock splits, stock dividends and the
like).
(2) Unless
the Company notifies Participant within ninety (90) days from the Termination Date that it does not intend to exercise its Repurchase
Option with respect to some or all of the Shares then subject thereto, the Repurchase Option shall be deemed automatically exercised
by the Company as of the ninetieth (90
th
) day following such termination, provided that the Company may notify Participant
that it is exercising its Repurchase Option as of a date prior to such ninetieth (90
th
) day. Unless Participant is otherwise
notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as
to some or all of the Shares to which it applies at the time of termination, execution of this Agreement by Participant constitutes
written notice to Participant of the Company’s intention to exercise its Repurchase Option with respect to all Shares to
which such Repurchase Option applies. The Company, at its choice, may satisfy its payment obligation to Participant with respect
to exercise of the Repurchase Option by either (A) delivering a check to Participant in the amount of the purchase price for
the Shares being repurchased, or (B) in the event Participant is indebted to the Company, canceling an amount of such indebtedness
equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined
payment and cancellation of indebtedness equals such purchase price. In the event of any deemed automatic exercise of the Repurchase
Option pursuant to this Section 3(a)(2) in which Participant is indebted to the Company, such indebtedness equal to the purchase
price of the Shares being repurchased shall be deemed automatically canceled as of the ninetieth (90
th
) day following
the Termination Date unless the Company otherwise satisfies its payment obligations. As a result of any repurchase of Shares pursuant
to this Section 5(a), the Company shall become the legal and beneficial owner of the Shares being repurchased and shall have all
rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Participant.
(3) Four
Million Two Hundred Thirty-Seven Thousand Five Hundred Thirteen (4,237,513) shares of the Shares covered by the Option shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting
Schedule set forth in the Notice of Stock Option Grant until all Shares are released from the Repurchase Option in accordance therewith.
Fractional shares shall be rounded to the nearest whole share.
(b)
Right
of First Refusal
. As to any Shares as to which the Company’s Repurchase Option has lapsed and before
any
Shares such held by Participant or any transferee
(either
being sometimes referred to herein as
the “Holder”) may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall
have a right of first refusal to purchase the Shares
on the terms and conditions set forth in this Section 5(b) (the “
Right of First Refusal
”)
.
(1)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the “Offered
Price”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(2)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(3)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(4)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(5)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(6)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5(b) notwithstanding, the transfer of any
or all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit
of Participant’s immediate family shall be exempt from the provisions of this Section 5(b). “Immediate Family”
as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 5(b), and there shall
be no further transfer of such Shares except in accordance with the terms of this Section 5.
(c)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded. The Company’s Repurchase Option shall terminate as provided in the Vesting Schedule
in the Notice of Stock Option Grant.
6.
Escrow
of Unvested Shares
. For purposes of facilitating the enforcement of the provisions of Section 5(a) above, Participant shall,
if requested by the Company within five (5) days following the exercise of the Option for any Unvested Shares, upon receipt of
the certificate(s) for the Shares subject to the Repurchase Option, deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed by Participant and by Participant’s spouse
(if required for transfer), in blank, to the Secretary of the Company, or the Secretary’s designee, to hold such certificate(s)
and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases
as are in accordance with the terms of this Agreement. Participant hereby acknowledges that the Secretary of the Company, or the
Secretary’s designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make
this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Participant agrees that said
escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine and may resign at any time. Participant agrees that if the
Secretary of the Company, or the Secretary’s designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement.
7.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
8.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, RIGHTS OF REPURCHASE AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHTS OF REPURCHASE AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
9.
Section
83(b) Election
. Participant understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the “Code”),
taxes as ordinary income for a Nonstatutory Stock Option and as alternative minimum taxable income for an Incentive Stock Option
the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on
the Shares lapse. In this context, “restriction” means the right of the Company to buy back the Shares pursuant to
the Repurchase Option set forth in Section 5(a) of this Agreement. Participant understands that Participant may elect to be taxed
at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section
83(b) (an “83(b) Election”) of the Code with the Internal Revenue Service
within thirty (30) days
from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the
amount paid for the Shares, the election must be made to avoid income and alternative minimum tax treatment under Section 83(a)
in the future. Participant understands that failure to file such an election in a timely manner may result in adverse tax consequences
for Participant. Participant further understands that an additional copy of such election form should be filed with his federal
income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing
is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and
does not purport to be complete. Participant further acknowledges that the Company has directed Participant to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which
Participant may reside, and the tax consequences of Participant’s death.
10.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
11.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
12.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
13.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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«Address»
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Title
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«City State Zip»
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Address:
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that
certain Exercise Notice and Restricted Stock Purchase Agreement between the undersigned (“
Participant
”) and
Ritter Pharmaceuticals, Inc. (the “
Company
”) dated _______________, ____ (the “
Agreement
”),
Participant hereby sells, assigns and transfers unto the Company _________________________________ (________) shares of the Common
Stock of the Company, standing in Participant’s name on the books of the Company and represented by Certificate No. ____,
and does hereby irrevocably constitute and appoint ________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE ATTACHMENTS THERETO.
Dated: _____________________
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Signature:
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Michael D. Step
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Spouse of Michael D. Step (if applicable)
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Instruction: Please do not fill in any blanks other than
the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option set forth in the
Agreement without requiring additional signatures on the part of Participant.
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned (which term includes the
undersigned’s spouse), a purchaser of ___________ shares of Common Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation
(the “
Company
”) by exercise of an option (the “
Option
”) granted pursuant to the Company’s
2008 Stock Plan (the “
Plan
”), hereby states as follows:
1. The
undersigned acknowledges receipt of a copy of the Plan relating to the offering of such shares. The undersigned has carefully reviewed
the Plan and the option agreement pursuant to which the Option was granted.
2. The
undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has
been fully advised by, the undersigned’s own tax advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (the “
Code
”) and pursuant to the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not
to consult such a tax advisor.
3. The
undersigned hereby states that the undersigned has decided [check as applicable]:
(a) ____ to make an election pursuant
to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned’s executed Exercise Notice
and Restricted Stock Purchase Agreement, an executed form entitled “Election Under Section 83(b) of the Internal Revenue
Code of 1986;” or
(b) ____ not to make an election
pursuant to Section 83(b) of the Code.
4. Neither
the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned’s purchase of shares under the Plan or of the making or failure to make
an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
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Date:
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Michael D. Step
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Date:
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Spouse of Michael D. Step
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ATTACHMENT C
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects,
pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer’s gross income or alternative minimum taxable
income, as applicable, for the current taxable year, the amount of any income that may be taxable to taxpayer in connection with
taxpayer’s receipt of the property described below:
1. The
name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER: Michael D. Step
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The
property with respect to which the election is made is described as follows:
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______________ shares of the Common Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”).
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3. The
date on which the property was transferred is: _______________
4. The
property is subject to the following restrictions:
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Repurchase option at cost in favor of the Company upon termination of taxpayer’s employment or consulting relationship.
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5. The
Fair Market Value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $____________
6. The
amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned’s receipt of the above-described property.
The transferee of such property is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may
not be revoked except with the consent of the Commissioner
.
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Dated: ____________
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Michael D. Step
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Dated: ____________
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Spouse of
Michael D. Step
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RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt
of a photocopy of Certificate No. ______ for ________ shares of Common Stock of Ritter Pharmaceuticals, Inc. (the “
Company
”).
The undersigned further acknowledges that
the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Exercise Notice and Restricted
Stock Purchase Agreement Participant has previously entered into with the Company. As escrow holder, the Secretary of the Company,
or his or her designee, holds the original of the aforementioned certificate issued in the undersigned’s name.
Dated: _______________
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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MICHAEL D. STEP
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding specified limitations, (3) the resale being made in an unsolicited
“broker’s
transaction”, transactions directly with a “market maker” or “riskless principal transactions” (as
those terms are defined under the Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.10
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Michael D. Step
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Exercise Price per Share:
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$0.82
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Total Number of Shares Granted:
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524,646 (the “Shares”)
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Total Exercise Price:
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$430,209.72
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
This Option shall be
immediately exercisable, in whole or in part, with 480,926 of the Shares initially covered hereby subject to a right of repurchase
in favor of the Company. Such right of repurchase shall lapse as to 1/44
th
of the Shares subject to the right of repurchase
on a monthly basis on the first day of each month after the date hereof, commencing with January 1, 2015, subject to Participant
continuing to be a Service Provider through each such date. Notwithstanding the foregoing, the right of repurchase shall expire
in full with respect to all of the shares of Common Stock then subject to the right of repurchase upon the first to occur of any
of the events set forth in Section 3 (Termination Without Cause or by Executive With Good Reason) and Section 4 (Change in Control
Termination) of that certain Executive Severance & Change in Control Agreement by and between the Company and Participant dated
as of December 2, 2014.
Termination Period:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice and restricted stock purchase agreement in
the form attached as
Exhibit A
(the “Exercise Notice”) or in a manner and pursuant to such procedures as the
Administrator may determine, which shall state the election to exercise the Option, the number of Shares with respect to which
the Option is being exercised, and such other representations and agreements as
may be required by the Company. The Exercise
Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares, together with any applicable
tax withholding. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice
accompanied by the aggregate Exercise Price, together with any applicable tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant shall, if required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company his or her Investment Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the date of exercise, and (iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting
such Shares, in the sole discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that
was less than the Fair
Market Value of a Share on the date of grant, Participant shall be solely responsible for Participant’s costs related to
such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF (AND THE LAPSE OF THE COMPANY’S RIGHT OF REPURCHASE) IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL
OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED
THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED
HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS
A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S
RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Michael D. Step
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/s/ Andrew J. Ritter
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Signature
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By
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Michael D. Step
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Andrew J. Ritter
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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President
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE AND RESTRICTED STOCK
PURCHASE AGREEMENT
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
Of
these Shares, Participant has elected to purchase _______________ Shares as to which the right of repurchase under the Vesting
Schedule set forth in the Notice of Stock Option Grant has lapsed as of the date hereof (the “Vested Shares”) and _____________
Shares as to which the right of repurchase under the Vesting Schedule set forth in the Notice of Stock Option Grant has not yet
lapsed (the “Unvested Shares”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Limitations
on Transfer
. In addition to any other limitation on transfer created by applicable securities laws, Participant shall not assign,
encumber or dispose of any interest in any Shares that are subject to the Company’s Repurchase Option (as defined below).
After any Shares have been released from such Repurchase Option, Participant shall not assign, encumber or dispose of any interest
in such Shares except in compliance with the provisions of Section 5(b) below and applicable securities laws.
(a)
Repurchase
Option
.
(1) Subject
to termination of the Company’s Repurchase Option as provided in the Vesting Schedule specified in the Notice of Stock Option
Grant, in the event Participant is no longer a Service Provider for any reason (including death or disability), the Company shall
upon the date of such termination (the “Termination Date”) have an irrevocable, exclusive option for a period of ninety
(90) days from such date to repurchase all or any portion of the Shares held by Participant as of the Termination Date as to which
the right of repurchase set forth in the Vesting Schedule has not yet lapsed (the “Repurchase Option”) at the original
purchase price per Share specified in the Notice of Stock Option Grant (adjusted for any stock splits, stock dividends and the
like).
(2) Unless
the Company notifies Participant within ninety (90) days from the Termination Date that it does not intend to exercise its Repurchase
Option with respect to some or all of the Shares then subject thereto, the Repurchase Option shall be deemed automatically exercised
by the Company as of the ninetieth (90
th
) day following such termination, provided that the Company may notify Participant
that it is exercising its Repurchase Option as of a date prior to such ninetieth (90
th
) day. Unless Participant is otherwise
notified by the Company pursuant to the preceding sentence that the Company does not intend to exercise its Repurchase Option as
to some or all of the Shares to which it applies at the time of termination, execution of this Agreement by Participant constitutes
written notice to Participant of the Company’s intention to exercise its Repurchase Option with respect to all Shares to
which such Repurchase Option applies. The Company, at its choice, may satisfy its payment obligation to Participant with respect
to exercise of the Repurchase Option by either (A) delivering a check to Participant in the amount of the purchase price for
the Shares being repurchased, or (B) in the event Participant is indebted to the Company, canceling an amount of such indebtedness
equal to the purchase price for the Shares being repurchased, or (C) by a combination of (A) and (B) so that the combined
payment and cancellation of indebtedness equals such purchase price. In the event of any deemed automatic exercise of the Repurchase
Option pursuant to this Section 3(a)(2) in which Participant is indebted to the Company, such indebtedness equal to the purchase
price of the Shares being repurchased shall be deemed automatically canceled as of the ninetieth (90
th
) day following
the Termination Date unless the Company otherwise satisfies its payment obligations. As a result of any repurchase of Shares pursuant
to this Section 5(a), the Company shall become the legal and beneficial owner of the Shares being repurchased and shall have all
rights and interest therein or related thereto, and the Company shall have the right to transfer to its own name the number of
Shares being repurchased by the Company, without further action by Participant.
(3) Four
Million Two Hundred Thirty-Seven Thousand Five Hundred Thirteen (4,237,513) shares of the Shares covered by the Option shall initially
be subject to the Repurchase Option. The Unvested Shares shall be released from the Repurchase Option in accordance with the Vesting
Schedule set forth in the Notice of Stock Option Grant until all Shares are released from the Repurchase Option in accordance therewith.
Fractional shares shall be rounded to the nearest whole share.
(b)
Right
of First Refusal
. As to any Shares as to which the Company’s Repurchase Option has lapsed and before
any
Shares such held by Participant or any transferee
(either
being sometimes referred to herein as
the “Holder”) may be sold or otherwise transferred (including transfer
by gift or operation of law), the Company or its assignee(s) shall
have a right of first refusal to purchase the Shares
on the terms and conditions set forth in this Section 5(b) (the “
Right of First Refusal
”)
.
(1)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the
Company or its assignee(s).
(2)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(3)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(4)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(5)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(6)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5(b) notwithstanding, the transfer of any
or all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit
of Participant’s immediate family shall be exempt from the provisions of this Section 5(b). “Immediate Family”
as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee
or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 5(b), and there shall
be no further transfer of such Shares except in accordance with the terms of this Section 5.
(c)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded. The Company’s Repurchase Option shall terminate as provided in the Vesting Schedule
in the Notice of Stock Option Grant.
6.
Escrow
of Unvested Shares
. For purposes of facilitating the enforcement of the provisions of Section 5(a) above, Participant shall,
if requested by the Company within five (5) days following the exercise of the Option for any Unvested Shares, upon receipt of
the certificate(s) for the Shares subject to the Repurchase Option, deliver such certificate(s), together with an Assignment Separate
from Certificate in the form attached to this Agreement as Attachment A executed by Participant and by Participant’s spouse
(if required for transfer), in blank, to the Secretary of the Company, or the Secretary’s designee, to hold such certificate(s)
and Assignment Separate from Certificate in escrow and to take all such actions and to effectuate all such transfers and/or releases
as are in accordance with the terms of this Agreement. Participant hereby acknowledges that the Secretary of the Company, or the
Secretary’s designee, is so appointed as the escrow holder with the foregoing authorities as a material inducement to make
this Agreement and that said appointment is coupled with an interest and is accordingly irrevocable. Participant agrees that said
escrow holder shall not be liable to any party hereof (or to any other party). The escrow holder may rely upon any letter, notice
or other document executed by any signature purported to be genuine and may resign at any time. Participant agrees that if the
Secretary of the Company, or the Secretary’s designee, resigns as escrow holder for any or no reason, the Board of Directors
of the Company shall have the power to appoint a successor to serve as escrow holder pursuant to the terms of this Agreement.
7.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
8.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, RIGHTS OF REPURCHASE AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER
OR ITS ASSIGNEE(S) AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH
MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHTS OF REPURCHASE AND RIGHT OF FIRST REFUSAL
ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
9.
Section
83(b) Election
. Participant understands that Section 83(a) of the Internal Revenue Code of 1986, as amended (the “Code”),
taxes as ordinary income for a Nonstatutory Stock Option and as alternative minimum taxable income for an Incentive Stock Option
the difference between the amount paid for the Shares and the Fair Market Value of the Shares as of the date any restrictions on
the Shares lapse. In this context, “restriction” means the right of the Company to buy back the Shares pursuant to
the Repurchase Option set forth in Section 5(a) of this Agreement. Participant understands that Participant may elect to be taxed
at the time the Shares are purchased, rather than when and as the Repurchase Option expires, by filing an election under Section
83(b) (an “83(b) Election”) of the Code with the Internal Revenue Service
within thirty (30) days
from the date of purchase. Even if the Fair Market Value of the Shares at the time of the execution of this Agreement equals the
amount paid for the Shares, the election must be made to avoid income and alternative minimum tax treatment under Section 83(a)
in the future. Participant understands that failure to file such an election in a timely manner may result in adverse tax consequences
for Participant. Participant further understands that an additional copy of such election form should be filed with his federal
income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing
is only a summary of the effect of United States federal income taxation with respect to purchase of the Shares hereunder, and
does not purport to be complete. Participant further acknowledges that the Company has directed Participant to seek independent
advice regarding the applicable provisions of the Code, the income tax laws of any municipality, state or foreign country in which
Participant may reside, and the tax consequences of Participant’s death.
10.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
11.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
12.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
13.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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ATTACHMENT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that
certain Exercise Notice and Restricted Stock Purchase Agreement between the undersigned (“
Participant
”) and
Ritter Pharmaceuticals, Inc. (the “
Company
”) dated _______________, ____ (the “
Agreement
”),
Participant hereby sells, assigns and transfers unto the Company _________________________________ (________) shares of the Common
Stock of the Company, standing in Participant’s name on the books of the Company and represented by Certificate No. ____,
and does hereby irrevocably constitute and appoint ________________________________________________ to transfer said stock on the
books of the Company with full power of substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY THE AGREEMENT
AND THE ATTACHMENTS THERETO.
Dated: _____________________
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Signature:
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Michael D. Step
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Spouse of Michael D. Step (if applicable)
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Instruction: Please do not fill in any blanks other than
the signature line. The purpose of this assignment is to enable the Company to exercise its Repurchase Option set forth in the
Agreement without requiring additional signatures on the part of Participant.
ATTACHMENT B
ACKNOWLEDGMENT AND STATEMENT OF DECISION
REGARDING SECTION 83(b) ELECTION
The undersigned (which term includes the
undersigned’s spouse), a purchaser of ___________ shares of Common Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation
(the “
Company
”) by exercise of an option (the “
Option
”) granted pursuant to the Company’s
2008 Stock Plan (the “
Plan
”), hereby states as follows:
1. The
undersigned acknowledges receipt of a copy of the Plan relating to the offering of such shares. The undersigned has carefully reviewed
the Plan and the option agreement pursuant to which the Option was granted.
2. The
undersigned either [check and complete as applicable]:
(a) ____ has consulted, and has
been fully advised by, the undersigned’s own tax advisor, _____________________________________, whose business address is
______________________________, regarding the federal, state and local tax consequences of purchasing shares under the Plan, and
particularly regarding the advisability of making elections pursuant to Section 83(b) of the Internal Revenue Code of 1986, as
amended (the “
Code
”) and pursuant to the corresponding provisions, if any, of applicable state law; or
(b) ____ has knowingly chosen not
to consult such a tax advisor.
3. The
undersigned hereby states that the undersigned has decided [check as applicable]:
(a) ____ to make an election pursuant
to Section 83(b) of the Code, and is submitting to the Company, together with the undersigned’s executed Exercise Notice
and Restricted Stock Purchase Agreement, an executed form entitled “Election Under Section 83(b) of the Internal Revenue
Code of 1986;” or
(b) ____ not to make an election
pursuant to Section 83(b) of the Code.
4. Neither
the Company nor any subsidiary or representative of the Company has made any warranty or representation to the undersigned with
respect to the tax consequences of the undersigned’s purchase of shares under the Plan or of the making or failure to make
an election pursuant to Section 83(b) of the Code or the corresponding provisions, if any, of applicable state law.
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Date:
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Michael D. Step
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Date:
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Spouse of Michael D. Step
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ATTACHMENT C
ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer hereby elects,
pursuant to Section 83(b) of the Internal Revenue Code, to include in taxpayer’s gross income or alternative minimum taxable
income, as applicable, for the current taxable year, the amount of any income that may be taxable to taxpayer in connection with
taxpayer’s receipt of the property described below:
1. The
name, address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER: Michael D. Step
NAME OF SPOUSE: ________________
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER: _______________
IDENTIFICATION NO. OF SPOUSE: _______________
TAXABLE YEAR: __________
2. The
property with respect to which the election is made is described as follows:
______________ shares of the Common
Stock of Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”).
3. The
date on which the property was transferred is: _______________
4. The
property is subject to the following restrictions:
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Repurchase option at cost in favor of the Company upon termination of taxpayer’s employment or consulting relationship.
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5. The
Fair Market Value at the time of transfer, determined without regard to any restriction other than a restriction which by its terms
will never lapse, of such property is: $____________
6. The
amount (if any) paid for such property: $____________
The undersigned has submitted a copy of this statement to the
person for whom the services were performed in connection with the undersigned’s receipt of the above-described property.
The transferee of such property is the person performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may
not be revoked except with the consent of the Commissioner
.
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Dated: ____________
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Michael D. Step
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Dated: ____________
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Spouse of
Michael D. Step
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RECEIPT AND CONSENT
The undersigned hereby acknowledges receipt
of a photocopy of Certificate No. ______ for ________ shares of Common Stock of Ritter Pharmaceuticals, Inc. (the “
Company
”).
The undersigned further acknowledges that
the Secretary of the Company, or his or her designee, is acting as escrow holder pursuant to the Exercise Notice and Restricted
Stock Purchase Agreement Participant has previously entered into with the Company. As escrow holder, the Secretary of the Company,
or his or her designee, holds the original of the aforementioned certificate issued in the undersigned’s name.
Dated: _______________
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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MICHAEL D. STEP
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding specified limitations, (3) the resale being made in an unsolicited
“broker’s
transaction”, transactions directly with a “market maker” or “riskless principal transactions” (as
those terms are defined under the Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.11
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Andrew J. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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September 25, 2013
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Vesting Commencement Date:
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See below
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Exercise Price per Share:
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$0.1782
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Total Number of Shares Granted:
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350,000
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Total Exercise Price:
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$62,370.00
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Type of Option:
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NSO
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Term/Expiration Date:
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September 25, 2023, 5 p.m. Pacific time
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Vesting Schedule
:
This Option shall be
exercisable, in whole or in part, according to the following vesting schedule:
(a) As to 25,000 Shares
covered by this Option, upon the achievement of the FDA Milestone (as hereinafter defined), this Option shall vest as to 35% of
such 25,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the month following
the month in which the FDA Milestone was achieved. For purposes hereof, “FDA Milestone” means any in-person or telephonic
meeting with the FDA regarding, or any written response by the FDA to questions posed by the Company regarding, RP-G28’s
path to FDA approval. The parties acknowledge and agree that the FDA Milestone was achieved on February 20, 2012 and thus 35% of
25,000 shares covered by this Option vested as of February 20, 2012 and the balance began vesting in accordance with the foregoing
schedule as of March 31, 2012.
(b) As to 75,000 Shares
covered by this Option, upon the achievement of the Phase II Funding Milestone (as hereinafter defined), this Option shall vest
as to 35% of such 75,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the month
following the month in which the Phase II Funding Milestone was achieved. For purposes hereof, “Phase II Funding Milestone”
means any commitment by a third-party to fund a Phase II or later clinical trial after the Effective Date, whether or not any such
committed funds are paid directly to the Company.
(c) As to 50,000 Shares
covered by this Option, upon the achievement of the Base Financing Funding Milestone (as hereinafter defined), this Option shall
vest as to 35% of such 50,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the
month following the month in which the Base Financing Funding Milestone was achieved. For purposes hereof, “Base Financing
Funding Milestone” means the sale of additional equity capital for cash, in one or more closings after July 17, 2012, and/or
the actual deployment of funds by a third party for a clinical trial after the Date of Grant of this Option, in an aggregate amount
in excess of $2,000,000, but no more than $10,000,000.
(d) As to 100,000 Shares
covered by this Option, upon the achievement of the Excess Fundraising Milestone (as hereinafter defined), this Option shall vest
as to 35% of such 100,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the month
following the month in which the Excess Fundraising Milestone was achieved. For purposes hereof, “Excess Fundraising Milestone”
means the sale of additional equity capital for cash, in one or more closings after July 17, 2012, and/or the actual deployment
of funds by a third party for a clinical trial after the Date of Grant of this Option, in an aggregate amount in excess of $10,000,000.
(e) As to 325,000 Shares
covered by this Option, upon the receipt by the Company of an Initial Period License Payment (as defined in that certain Equity
Compensation Plan, approved by the Board of Directors of the Company as of the Date of Grant, which Equity Compensation Plan covers
the undersigned Participant; hereinafter, the “Equity Compensation Plan”) of more than $2,000,000, this Option shall
vest as to 35% of such 325,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the
month following the month in which such Initial Period License Payment is received by the Company.
(f) With respect to
any Annual Excess Milestone Payments (as defined in the Equity Compensation Plan), this Option shall vest as to 35% of 50,000 Shares
covered by this Option, with the balance to vest in 36 equal monthly installments beginning on the last day of the following month.
(g) Notwithstanding
(i) anything in this Option to the contrary, (ii) the vesting provisions set forth in clauses (a) through (f) immediately above
and (iii) that the number of Shares that may vest pursuant to this Option exceeds the total number of Shares subject to this Option,
the undersigned Participant understands and agrees that (A) the total potential number of Shares that may vest pursuant to this
Option may in no event exceed 350,000 Shares and (B) this Option shall automatically terminate as to any Shares for which a vesting
date or schedule has not been established by September 25, 2015.
Termination Period
:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the
“Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state
the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by
the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the
date of exercise, and
(iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole
discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT
OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Andrew J. Ritter
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/s/ Michael D. Step
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Signature
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By
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Andrew J. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the
Company or its assignee(s).
(b)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or
all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this
Section 5. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother
or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions
of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
7.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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ANDREW J. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not
exceeding specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions
directly with a “market maker” or “riskless principal transactions” (as those terms are defined under the
Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.12
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE OF STOCK
OPTION GRANT
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Name:
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Andrew J. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Vesting Commencement Date:
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December 2, 2014
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Exercise Price per Share:
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$0.82
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Total Number of Shares Granted:
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150,000
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Total Exercise Price:
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$123,000
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
This Option shall be immediately
vested in full and exercisable, in whole or in part, as of the Date of Grant.
Termination Period:
This Option shall be exercisable
for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death
or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider.
Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above
and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant of Option
.
The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part I of this Agreement
(“Participant”), an option (the “Option”) to purchase the number of Shares set forth in the Notice of Stock
Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise Price”),
and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 19(c) of the
Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms and conditions
of the Plan shall prevail.
If designated in the Notice
of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an Incentive
Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section
422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise of Option
.
(a)
Right to Exercise
.
This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method of Exercise
.
This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the “Exercise
Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state the election
to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be issued
pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised
with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by the
Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up Period
.
Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or other arrangement
that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock (or other securities)
of the Company held by Participant (other than those included in the registration) for a period specified by the representative
of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty (180) days following
the effective date of any registration statement of the Company filed under the Securities Act (or such other period as may be
requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or other distribution
of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the restrictions contained
in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees to
execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method of Payment
.
Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Participant:
(a) cash;
(b) check;
(c) consideration received
by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender of other
Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least the period
required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on the
date of exercise, and (iii)
must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole discretion
of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions on
Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term of Option
.
This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
9.
Tax Obligations
.
(a)
Tax Withholding
.
Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Participant)
for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements applicable to
the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver
the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice of Disqualifying
Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells or otherwise disposes
of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after the Date of Grant,
or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in writing of such disposition.
Participant agrees that Participant may be subject to income tax withholding by the Company on the compensation income recognized
by Participant.
(c)
Code Section 409A
.
Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise price that is
determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share on the date
of grant (a “discount option”) may be considered “deferred compensation.” An Option that is a “discount
option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an additional twenty
percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option” may also
result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company cannot
and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair Market
Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option was
granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant shall
be solely responsible for Participant’s costs related to such a determination.
10.
Entire Agreement;
Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No Guarantee
of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF
IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR RETAINING
PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT FURTHER
ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN
DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD,
OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT OR SUBSIDIARY
EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Andrew J. Ritter
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/s/ Michael D. Step
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Signature
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By
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Andrew J. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise of Option
.
Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise Participant’s
option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”) of Ritter Pharmaceuticals,
Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”) and the Stock Option Agreement
dated _________________, _____ (the “Option Agreement”).
2.
Delivery of Payment
.
Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option Agreement, and any
and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights as Stockholder
.
Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the
Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section 11 of the
Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice of Proposed
Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating: (i) the
Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other
transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv)
the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the
Company or its assignee(s).
(b)
Exercise of Right
of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase Price
.
The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this Section
5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash
consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
. Payment
of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation of all
or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee, to the
assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the times
set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception for Certain
Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or all of the Shares
during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s immediate family
or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this Section 5. “Immediate
Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case,
the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section 5,
and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination of
Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax Consultation
.
Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s purchase or disposition
of the Shares. Participant represents that Participant has consulted with any tax consultants Participant deems advisable in connection
with the purchase or disposition of the Shares and that Participant is not relying on the Company for any tax advice.
7.
Restrictive Legends
and Stop-Transfer Orders
.
(a)
Legends
. Participant
understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent thereto, to
be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required by the
Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF
THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY OR THE
MANAGING UNDERWRITER.
(b)
Stop-Transfer Notices
.
Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate
“stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own securities,
it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors and
Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this Exercise
Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer herein
set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors and
assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing Law;
Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire Agreement
.
The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement and the
Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter
hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the Company
and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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ANDREW J. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with the
purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant is aware
of the Company’s business affairs and financial condition and has acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment for
Participant’s own account only and not with a view to, or for resale in connection with, any “distribution” thereof
within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant acknowledges
and understands that the Securities constitute “restricted securities” under the Securities Act and have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant understands that,
in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable if Participant’s
representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified
under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period
of one year or any other fixed period in the future. Participant further understands that the Securities must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption from such registration is available. Participant
further acknowledges and understands that the Company is under no obligation to register the Securities. Participant understands
that the certificate evidencing the Securities shall be imprinted with any legend required under applicable state securities laws.
(c) Participant is familiar
with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public
resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public offering
subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the time of
the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the event the
Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90)
days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule 701 may
be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding
specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions directly
with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities
Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the Company
does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company;
(ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for
the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set forth in
sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant further
understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding the fact that
Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rules 144 or
701 shall have a substantial burden of proof in establishing that an exemption from registration is available for such offers or
sales; and that such persons and their respective brokers who participate in such transactions do so at their own risk. Participant
understands that no assurances can be given that any such other registration exemption shall be available in such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.13
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Andrew J. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Vesting Commencement Date:
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September 1, 2014
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Exercise Price per Share:
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$0.82 for the first 1,089,284 shares exercised pursuant hereto; $1.30 for the next 1,001,311 shares exercised pursuant hereto; $1.85 for the remaining 1,001,310 shares exercised pursuant hereto (such exercise prices and number of shares are subject to proportionate adjustment as set forth below in this Option).
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Total Number of Shares Granted:
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3,091,905
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Total Exercise Price:
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$4,047,340.68
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
This Option shall be exercisable,
in whole or in part, according to the following vesting schedule: twenty five percent (25%) of the Shares subject to the Option
shall vest on the first anniversary of the Vesting Commencement Date and the remaining seventy five percent (75%) of the Shares
subject to the Option shall vest in 36 equal monthly installments beginning on the last day of the first full month thereafter,
subject to Participant continuing to be a Service Provider through each such date
Termination Period:
This Option shall be exercisable
for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death
or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider.
Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above
and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the Notice
of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an Incentive
Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section
422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the
“Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state
the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be issued
pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised
with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by the
Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees to
execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the
date of exercise, and (iii)
must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole discretion
of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT
OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Andrew J. Ritter
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/s/ Michael D. Step
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Signature
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By
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Andrew J. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the Company
or its assignee(s).
(b)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or
all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this
Section 5. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother
or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions
of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
7.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF
THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY OR THE
MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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ANDREW J. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with the
purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding
specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions directly
with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities
Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the Company
does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company;
(ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for
the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set forth in
sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.14
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Ira E. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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September 25, 2013
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Vesting Commencement Date:
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See below
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Exercise Price per Share:
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$0.1782
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Total Number of Shares Granted:
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350,000
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Total Exercise Price:
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$62,370.00
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Type of Option:
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NSO
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Term/Expiration Date:
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September 25, 2023, 5 p.m. Pacific time
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Vesting Schedule
:
This Option shall be
exercisable, in whole or in part, according to the following vesting schedule:
(a) As to 25,000 Shares
covered by this Option, upon the achievement of the FDA Milestone (as hereinafter defined), this Option shall vest as to 35% of
such 25,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the month following
the month in which the FDA Milestone was achieved. For purposes hereof, “FDA Milestone” means any in-person or telephonic
meeting with the FDA regarding, or any written response by the FDA to questions posed by the Company regarding, RP-G28’s
path to FDA approval. The parties acknowledge and agree that the FDA Milestone was achieved on February 20, 2012 and thus 35% of
25,000 shares covered by this Option vested as of February 20, 2012 and the balance began vesting in accordance with the foregoing
schedule as of March 31, 2012.
(b) As to 75,000 Shares
covered by this Option, upon the achievement of the Phase II Funding Milestone (as hereinafter defined), this Option shall vest
as to 35% of such 75,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the last day of the month
following the month in which the Phase II Funding Milestone was achieved. For purposes hereof, “Phase II Funding Milestone”
means any commitment by a third-party to fund a Phase II or later clinical trial after the Effective Date, whether or not any such
committed funds are paid directly to the Company.
(c) As
to 50,000 Shares covered by this Option, upon the achievement of the Base Financing Funding Milestone (as hereinafter defined),
this Option shall vest as to 35% of such 50,000 Shares, with the balance to vest in 36 equal monthly installments beginning on
the last day of the month following the month in which the Base Financing Funding Milestone was achieved. For purposes hereof,
“Base Financing Funding Milestone” means the sale of additional equity capital for cash, in one or more closings after
July 17, 2012, and/or the actual deployment of funds by a third party for a clinical trial after the Date of Grant of this Option,
in an aggregate amount in excess of $2,000,000, but no more than $10,000,000.
(d) As
to 100,000 Shares covered by this Option, upon the achievement of the Excess Fundraising Milestone (as hereinafter defined), this
Option shall vest as to 35% of such 100,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the
last day of the month following the month in which the Excess Fundraising Milestone was achieved. For purposes hereof, “Excess
Fundraising Milestone” means the sale of additional equity capital for cash, in one or more closings after July 17, 2012,
and/or the actual deployment of funds by a third party for a clinical trial after the Date of Grant of this Option, in an aggregate
amount in excess of $10,000,000.
(e) As
to 325,000 Shares covered by this Option, upon the receipt by the Company of an Initial Period License Payment (as defined in that
certain Equity Compensation Plan, approved by the Board of Directors of the Company as of the Date of Grant, which Equity Compensation
Plan covers the undersigned Participant; hereinafter, the “Equity Compensation Plan”) of more than $2,000,000, this
Option shall vest as to 35% of such 325,000 Shares, with the balance to vest in 36 equal monthly installments beginning on the
last day of the month following the month in which such Initial Period License Payment is received by the Company.
(f) With
respect to any Annual Excess Milestone Payments (as defined in the Equity Compensation Plan), this Option shall vest as to 35%
of 50,000 Shares covered by this Option, with the balance to vest in 36 equal monthly installments beginning on the last day of
the following month.
(g) Notwithstanding
(i) anything in this Option to the contrary, (ii) the vesting provisions set forth in clauses (a) through (f) immediately above
and (iii) that the number of Shares that may vest pursuant to this Option exceeds the total number of Shares subject to this Option,
the undersigned Participant understands and agrees that (A) the total potential number of Shares that may vest pursuant to this
Option may in no event exceed 350,000 Shares and (B) this Option shall automatically terminate as to any Shares for which a vesting
date or schedule has not been established by September 25, 2015.
Termination Period
:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
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(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the
“Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state
the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by
the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the
date of exercise, and
(iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole
discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT
OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Ira E. Ritter
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/s/ Michael D. Step
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Signature
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By
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Ira E. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the
Company or its assignee(s).
(b)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or
all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this
Section 5. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother
or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions
of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
7.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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IRA E. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not
exceeding specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions
directly with a “market maker” or “riskless principal transactions” (as those terms are defined under the
Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.15
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
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I.
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NOTICE OF STOCK OPTION GRANT
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Name:
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Ira E. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Vesting Commencement Date:
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December 2, 2014
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Exercise Price per Share:
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$0.82
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Total Number of Shares Granted:
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150,000
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Total Exercise Price:
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$123,000
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
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This Option shall be immediately
vested in full and exercisable, in whole or in part, as of the Date of Grant.
Termination Period:
This Option shall be exercisable
for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s death
or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service Provider.
Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided above
and may be subject to earlier termination as provided in Section 11(c) of the Plan.
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the Notice
of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an Incentive
Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of Code Section
422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the
“Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state
the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be issued
pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such compliance,
for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is exercised
with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by the
Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment Representation
Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees to
execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the
date of exercise, and (iii)
must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole discretion
of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT
OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Ira E. Ritter
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/s/ Michael D. Step
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Signature
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By
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Ira E. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the
Shares (the “Offered Price”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(b)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or
all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this
Section 5. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother
or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions
of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
7.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH
IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES.
THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC OFFERING OF
THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY OR THE
MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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IRA E. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with the
purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not exceeding
specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions directly
with a “market maker” or “riskless principal transactions” (as those terms are defined under the Securities
Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the Company
does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which may require (i) the availability of current public information about the Company;
(ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule 144) for
the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set forth in
sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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PARTICIPANT
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Signature
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Print Name
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Date
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Exhibit 10.16
RITTER PHARMACEUTICALS, INC.
2008 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined
herein, the terms defined in the 2008 Stock Plan (the “Plan”) shall have the same defined meanings in this Stock Option
Agreement (the “Option Agreement”).
I.
NOTICE
OF STOCK OPTION GRANT
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Name:
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Ira E. Ritter
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Address:
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c/o Ritter Pharmaceuticals, Inc.
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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The undersigned Participant has been granted
an Option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
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Date of Grant:
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December 2, 2014
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Vesting Commencement Date:
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September 1, 2014
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Exercise Price per Share:
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$0.82 for the first 1,089,284 shares exercised pursuant hereto; $1.30 for the next 1,001,311 shares exercised pursuant hereto; $1.85 for the remaining 1,001,310 shares exercised pursuant hereto (such exercise prices and number of shares are subject to proportionate adjustment as set forth below in this Option).
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Total Number of Shares Granted:
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3,091,905
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Total Exercise Price:
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$4,047,340.68
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Type of Option:
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NSO
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Term/Expiration Date:
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December 2, 2024, 5 p.m. Pacific time
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Vesting Schedule:
This Option shall be
exercisable, in whole or in part, according to the following vesting schedule: twenty five percent (25%) of the Shares subject
to the Option shall vest on the first anniversary of the Vesting Commencement Date and the remaining seventy five percent (75%)
of the Shares subject to the Option shall vest in 36 equal monthly installments beginning on the last day of the first full month
thereafter, subject to Participant continuing to be a Service Provider through each such date
Termination Period:
This Option shall be
exercisable for three (3) months after Participant ceases to be a Service Provider, unless such termination is due to Participant’s
death or Disability, in which case this Option shall be exercisable for twelve (12) months after Participant ceases to be a Service
Provider. Notwithstanding the foregoing sentence, in no event may this Option be exercised after the Term/Expiration Date as provided
above and may be subject to earlier termination as provided in Section 11(c) of the Plan.
II.
AGREEMENT
1.
Grant
of Option
. The Administrator of the Company hereby grants to the Participant named in the Notice of Stock Option Grant in Part
I of this Agreement (“Participant”), an option (the “Option”) to purchase the number of Shares set forth
in the Notice of Stock Option Grant, at the exercise price per Share set forth in the Notice of Stock Option Grant (the “Exercise
Price”), and subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section
19(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and this Option Agreement, the terms
and conditions of the Plan shall prevail.
If designated in the
Notice of Stock Option Grant as an Incentive Stock Option (“ISO”), this Option is intended to qualify as
an
Incentive Stock Option as defined in Section 422 of the Code. Nevertheless, to the extent that it exceeds the $100,000 rule of
Code Section 422(d), this Option shall be treated as a Nonstatutory Stock Option (“NSO”).
2.
Exercise
of Option
.
(a)
Right
to Exercise
. This Option shall be exercisable during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this Option Agreement.
(b)
Method
of Exercise
. This Option shall be exercisable by delivery of an exercise notice in the form attached as
Exhibit A
(the
“Exercise Notice”) or in a manner and pursuant to such procedures as the Administrator may determine, which shall state
the election to exercise the Option, the number of Shares with respect to which the Option is being exercised, and such other representations
and agreements as
may be required by the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise
Price as to all Exercised Shares, together with any applicable tax withholding. This Option shall be deemed to be exercised upon
receipt by the Company of such fully executed Exercise Notice accompanied by the aggregate Exercise Price, together with any applicable
tax withholding.
No Shares shall be
issued pursuant to the exercise of an Option unless such issuance and such exercise comply with Applicable Laws. Assuming such
compliance, for income tax purposes the Shares shall be considered transferred to Participant on the date on which the Option is
exercised with respect to such Shares.
3.
Participant’s
Representations
. In the event the Shares have not been registered under the Securities Act of 1933, as amended, at the time
this Option is exercised, Participant
shall, if required by
the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as
Exhibit B
.
4.
Lock-Up
Period
. Participant hereby agrees that Participant shall not offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer
or dispose of, directly or indirectly, any Common Stock (or other securities) of the Company or enter into any swap, hedging or
other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any Common Stock
(or other securities) of the Company held by Participant (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities) of the Company not to exceed one hundred eighty
(180) days following the effective date of any registration statement of the Company filed under the Securities Act (or such other
period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on (i) the publication or
other distribution of research reports and (ii) analyst ‘recommendations and opinions, including, but not limited to, the
restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto).
Participant agrees
to execute and deliver such other agreements as may be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. In addition, if requested by the Company or the representative
of the underwriters of Common Stock (or other securities) of the Company, Participant shall provide, within ten (10) days of such
request, such information as may be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the Securities Act. The obligations
described in this Section 4 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect
to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of said one hundred eighty
(180) day (or other) period. Participant agrees that any transferee of the Option or shares acquired pursuant to the Option shall
be bound by this Section 4.
5.
Method
of Payment
. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election
of the Participant:
(a) cash;
(b) check;
(c) consideration
received by the Company under a formal cashless exercise program adopted by the Company in connection with the Plan; or
(d) surrender
of other Shares which (i) if acquired either directly or indirectly from the Company, have been owned by Participant for at least
the period required to avoid a charge to the Company’s reported earnings, (ii) shall be valued at its Fair Market Value on
the
date of exercise, and
(iii) must be owned free and clear of any liens, claims, encumbrances or security interests, if accepting such Shares, in the sole
discretion of the Administrator, shall not result in any adverse accounting consequences to the Company.
6.
Restrictions
on Exercise
. This Option may not be exercised until such time as the Plan has been approved by the stockholders of the Company,
or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute
a violation of any Applicable Law.
7.
Non-Transferability
of Option
. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Participant only by Participant. The terms of the Plan and this Option Agreement shall
be binding upon the executors, administrators, heirs, successors and assigns of Participant.
8.
Term
of Option
. This Option may be exercised only within the term set out in the Notice of Stock Option Grant, and may be exercised
during such term only in accordance with the Plan and the terms of this Option.
9.
Tax
Obligations
.
(a)
Tax
Withholding
. Participant agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or
retaining Participant) for the satisfaction of all federal, state, local and foreign income and employment tax withholding requirements
applicable to the Option exercise. Participant acknowledges and agrees that the Company may refuse to honor the exercise and refuse
to deliver the Shares if such withholding amounts are not delivered at the time of exercise.
(b)
Notice
of Disqualifying Disposition of ISO Shares
. If the Option granted to Participant herein is an ISO, and if Participant sells
or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (i) the date two (2) years after
the Date of Grant, or (ii) the date one (1) year after the date of exercise, Participant shall immediately notify the Company in
writing of such disposition. Participant agrees that Participant may be subject to income tax withholding by the Company on the
compensation income recognized by Participant.
(c)
Code
Section 409A
. Under Code Section 409A, an Option that vests after December 31, 2004 that was granted with a per Share exercise
price that is determined by the Internal Revenue Service (the “IRS”) to be less than the Fair Market Value of a Share
on the date of grant (a “discount option”) may be considered “deferred compensation.” An Option that is
a “discount option” may result in (i) income recognition by Participant prior to the exercise of the Option, (ii) an
additional twenty percent (20%) federal income tax, and (iii) potential penalty and interest charges. The “discount option”
may also result in additional state income, penalty and interest tax to the Participant. Participant acknowledges that the Company
cannot and has not guaranteed that the IRS will agree that the per Share exercise price of this Option equals or exceeds the Fair
Market Value of a Share on the date of grant in a later examination. Participant agrees that if the IRS determines that the Option
was granted with a per Share exercise price that was less than the Fair Market Value of a Share on the date of grant, Participant
shall be solely responsible for Participant’s costs related to such a determination.
10.
Entire
Agreement; Governing Law
. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements
of the Company and Participant with respect to the subject matter hereof, and may not be modified adversely to Participant’s
interest except by means of a writing signed by the Company and Participant. This Agreement is governed by the internal substantive
laws but not the choice of law rules of California.
11.
No
Guarantee of Continued Service
. PARTICIPANT ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE
HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (OR THE PARENT OR SUBSIDIARY EMPLOYING OR
RETAINING PARTICIPANT) AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER. PARTICIPANT
FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR
ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE IN ANY WAY WITH PARTICIPANT’S RIGHT OR THE RIGHT OF THE COMPANY (OR THE PARENT
OR SUBSIDIARY EMPLOYING OR RETAINING PARTICIPANT) TO TERMINATE PARTICIPANT’S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME,
WITH OR WITHOUT CAUSE.
Participant acknowledges
receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Participant has reviewed the Plan and this Option in their entirety,
has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the
Option. Participant hereby agrees to accept as binding,
conclusive and final all decisions or interpretations
of the Administrator upon any questions arising under the Plan or this Option. Participant further agrees to notify the Company
upon any change in the residence address indicated below.
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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/s/ Ira E. Ritter
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/s/ Michael D. Step
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Signature
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By
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Ira E. Ritter
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Michael D. Step
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Print Name
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Print Name
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c/o Ritter Pharmaceuticals, Inc.
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Chief Executive Officer
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1801 Century Park East, No. 1820
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Title
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Los Angeles, CA 90067
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EXHIBIT A
2008 STOCK PLAN
EXERCISE NOTICE
Ritter Pharmaceuticals, Inc.
1801 Century Park East, No. 1820
Los Angeles, California 90067
Attention: Chief Executive Officer
1.
Exercise
of Option
. Effective as of today, ______________, _____, the undersigned (“Participant”) hereby elects to exercise
Participant’s option (the “Option”) to purchase ___________ shares of the Common Stock (the “Shares”)
of Ritter Pharmaceuticals, Inc. (the “Company”) under and pursuant to the 2008 Stock Plan (the “Plan”)
and the Stock Option Agreement dated _________________, _____ (the “Option Agreement”).
2.
Delivery
of Payment
. Participant herewith delivers to the Company the full purchase price of the Shares, as set forth in the Option
Agreement, and any and all withholding taxes due in connection with the exercise of the Option.
3.
Representations
of Participant
. Participant acknowledges that Participant has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
4.
Rights
as Stockholder
. Until the issuance of the Shares (as evidenced by the appropriate entry on the books of the Company or of a
duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall
exist with respect to the Common Stock subject to an Award, notwithstanding the exercise of the Option. The Shares shall be issued
to Participant as soon
as
practicable after the Option
is
exercised in accordance with the Option Agreement. No adjustment
shall be made for a dividend or other right for which the record date is prior to the date of issuance except as provided in Section
11 of the Plan.
5.
Company’s
Right of First Refusal
. Before any Shares held by Participant or any transferee (either being sometimes referred to herein
as
the “Holder”) may be sold or otherwise transferred (including transfer by gift or operation of law), the
Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in
this Section 5 (the “Right of First Refusal”).
(a)
Notice
of Proposed Transfer
. The Holder of the Shares shall deliver to the Company a written notice (the “Notice”) stating:
(i) the Holder’s bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser
or other transferee (“Proposed Transferee”); (iii) the number of Shares to be transferred to each Proposed Transferee;
and (iv) the bona fide cash price or other consideration for which the Holder proposes to transfer the Shares (the “Offered
Price”), and the Holder shall offer the Shares at the Offered Price to the Company or its assignee(s).
(b)
Exercise
of Right of First Refusal
. At any time within thirty (30) days after receipt of the Notice, the Company and/or its assignee(s)
may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred
to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (c) below.
(c)
Purchase
Price
. The purchase price (“Purchase Price”) for the Shares purchased by the Company or its assignee(s) under this
Section 5 shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of
the non-cash consideration shall be determined by the Board of Directors of the Company in good faith.
(d)
Payment
.
Payment of the Purchase Price shall be made, at the .option of the Company or its assignee(s), in cash (by check), by cancellation
of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the .case of repurchase by an assignee,
to the assignee), or by any combination thereof within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(e)
Holder’s
Right to Transfer
. If all of the Shares proposed in the Notice to be transferred to a given Proposed Transferee are not purchased
by the Company and/or its assignee(s) as
provided in this Section 5, then the Holder may sell or otherwise transfer such
Shares to that Proposed Transferee at the Offered Price or at a higher price,
provided
that such sale or other transfer
is consummated within one hundred and twenty (120) days after the date of the Notice, that any such sale or other transfer is effected
in accordance with any applicable securities laws and that the Proposed Transferee agrees in writing that the provisions of this
Section 5 shall continue to apply to the Shares in the hands of such Proposed Transferee. If the Shares described in the Notice
are not transferred to the Proposed Transferee within such period, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before any Shares held by the Holder may be sold or otherwise
transferred.
(f)
Exception
for Certain Family Transfers
. Anything to the contrary contained in this Section 5 notwithstanding, the transfer of any or
all of the Shares during Participant’s lifetime or on Participant’s death by will or intestacy to Participant’s
immediate family or a trust for the benefit of Participant’s immediate family shall be exempt from the provisions of this
Section 5. “Immediate Family” as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother
or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions
of this Section 5, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 5.
(g)
Termination
of Right of First Refusal
. The Right of First Refusal shall terminate as to any Shares upon the earlier of (i) the first sale
of Common Stock of the Company to the general public, or (ii) a Change in Control in which the successor corporation has equity
securities that are publicly traded.
6.
Tax
Consultation
. Participant understands that Participant may suffer adverse tax consequences as a result of Participant’s
purchase or disposition of the Shares. Participant represents that Participant has consulted with any tax consultants Participant
deems advisable in connection with the purchase or disposition of the Shares and that Participant is not relying on the Company
for any tax advice.
7.
Restrictive
Legends and Stop-Transfer Orders
.
(a)
Legends
.
Participant understands and agrees that the Company shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificate(s) evidencing ownership of the Shares together with any other legends that may be required
by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THESE
SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND A RIGHT OF FIRST REFUSAL HELD BY THE ISSUER OR ITS ASSIGNEE(S)
AS SET FORTH IN THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED
AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER FOR A PERIOD OF TIME FOLLOWING THE EFFECTIVE DATE OF THE UNDERWRITTEN PUBLIC
OFFERING OF THE COMPANY’S SECURITIES SET FORTH IN AN AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF BY THE HOLDER PRIOR TO THE EXPIRATION OF SUCH PERIOD WITHOUT THE CONSENT OF THE COMPANY
OR THE MANAGING UNDERWRITER.
(b)
Stop-Transfer
Notices
. Participant agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue
appropriate “stop transfer” instructions to its transfer agent, if any, and that, if the Company transfers its own
securities, it may make appropriate notations to the same effect in its own records.
(c)
Refusal
to Transfer
. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of
this Exercise Notice, or (ii)
to treat
as
owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to
whom such Shares shall have been so transferred.
8.
Successors
and Assigns
. The Company may assign any of its rights under this Exercise Notice to single or multiple assignees, and this
Exercise Notice shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Participant and his or her heirs, executors, administrators, successors
and assigns.
9.
Interpretation
.
Any dispute regarding the interpretation of this Exercise Notice shall be submitted by Participant or by the Company forthwith
to the Administrator which shall review such dispute at its next regular meeting. The resolution of such a dispute by the Administrator
shall be final and binding on all parties,
10.
Governing
Law; Severability
. This Exercise Notice is governed by the internal substantive laws but not the choice of law rules, of California.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Exercise Notice shall continue in full force and effect.
11.
Entire
Agreement
. The Plan and Option Agreement are incorporated herein by reference. This Exercise Notice, the Plan, the Option Agreement
and the Investment Representation Statement constitute the entire agreement of the parties with respect to the subject matter hereof
and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject
matter hereof, and may not be modified adversely to the Participant’s interest except by means of a writing signed by the
Company and Participant.
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Submitted by:
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Accepted by:
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PARTICIPANT
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RITTER PHARMACEUTICALS, INC.
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Signature
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By
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«Name»
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Print Name
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Print Name
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Address:
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Title
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«Address»
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Address:
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«City State Zip»
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1801 Century Park East, No. 1820
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Los Angeles, California 90067
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Date Received
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EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
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PARTICIPANT
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IRA E. RITTER
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COMPANY
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RITTER PHARMACEUTICALS, INC.
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SECURITY
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COMMON STOCK
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AMOUNT
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_______ SHARES
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In connection with
the purchase of the above-listed Securities, the undersigned Participant represents to the Company the following:
(a) Participant
is aware of the Company’s business affairs and financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Securities. Participant is acquiring these Securities for investment
for Participant’s own account only and not with a view to, or for resale in connection with, any “distribution”
thereof within the meaning of the Securities Act of 1933, as amended (the “Securities Act”).
(b) Participant
acknowledges and understands that the Securities constitute “restricted securities” under the Securities Act and have
not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among
other things, the bona fide nature of Participant’s investment intent as expressed herein. In this connection, Participant
understands that, in the view of the Securities and Exchange Commission, the statutory basis for such exemption may be unavailable
if Participant’s representation was predicated solely upon a present intention to hold these Securities for the minimum capital
gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the
Securities, or for a period of one year or any other fixed period in the future. Participant further understands that the Securities
must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration
is available. Participant further acknowledges and understands that the Company is under no obligation to register the Securities.
Participant understands that the certificate evidencing the Securities shall be imprinted with any legend required under applicable
state securities laws.
(c) Participant
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of “restricted securities” acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of the grant of the Option to Participant, the exercise shall be exempt from registration under the Securities Act. In the
event the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off agreement may require) the Securities exempt under Rule
701 may be resold, subject to the satisfaction of the applicable conditions specified by Rule 144, including in the case of affiliates
(1) the availability of certain public information about the Company, (2) the amount of Securities being sold during any three
(3) month period not
exceeding specified limitations, (3) the resale being made in an unsolicited “broker’s transaction”, transactions
directly with a “market maker” or “riskless principal transactions” (as those terms are defined under the
Securities Exchange Act of 1934) and (4) the timely filing of a Form 144, if applicable.
In the event that the
Company does not qualify under Rule 701 at the time of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which may require (i) the availability of current public information about
the Company; (ii) the resale to occur more than a specified period after the purchase and full payment (within the meaning of Rule
144) for the Securities; and (iii) in the case of the sale of Securities by an affiliate, the satisfaction of the conditions set
forth in sections (2), (3) and (4) of the paragraph immediately above.
(d) Participant
further understands that in the event all of the applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration exemption shall be required; and that, notwithstanding
the fact that Rules 144 and 701 are not exclusive, the Staff of the Securities and Exchange Commission has expressed its opinion
that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 shall have a substantial burden of proof in establishing that an exemption from registration is available for
such offers or sales; and that such persons and their respective brokers who participate in such transactions do so at their own
risk. Participant understands that no assurances can be given that any such other registration exemption shall be available in
such event.
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Exhibit 10.17
RESEARCH AND DEVELOPMENT AGREEMENT &
LICENSE
This is a RESEARCH AND
DEVELOPMENT AGREEMENT and LICENSE dated as of November 30, 2010 (as modified, amended or restated from time-to-time, the “
Agreement
”)
by and among:
KOLU POHAKU TECHNOLOGIES, LLC
, a Delaware limited liability company, with its principal place of business
and mailing address at 73-4460 Queen Kaahumanu Highway, #121, Kailua-Kona, Hawaii, 96740 (together with its successors and assigns,
“
Kolu Pohaku
”);
KOLU POHAKU MANAGEMENT, LLC
, a Delaware limited liability company, with its principal
place of business and mailing address at 236 Third Street, Baton Rouge, Louisiana 70801 (together with its successors and assigns,
“
KPM
”); and
RITTER PHARMACEUTICALS, INC.
, a Delaware corporation, with its principal place of
business and mailing address at 1880 Century Park East, No. 1100, Los Angeles, California 90067 (together with its successors and
assigns, “
Researcher
”). Kolu Pohaku, KPM and Researcher are referred to collectively as the “
Parties
”
and individually as a “
Party
” to this Agreement. In consideration of their mutual promises and with the
intention to be legally bound, the Parties hereby agree as follows:
1.
Background
.
1.1
Researcher
is not a Qualified High Technology Business (“
QHTB
”) within the meaning of Hawaii Revised Statutes (“
HRS
”)
section 235-110.9(e). However, Researcher has the experience and ability to engage in “Qualified Research” as that
term is defined in HRS section 235-7.3(c). Specifically, Researcher is a development stage pharmaceutical company with a Phase
II drug candidate for the treatment of lactose intolerance, RP-G28, preparing to conduct Phase II clinical trials involving RP-G28
(the “
Research Project
”). Researcher has not commercialized the results of its Research Project.
1.2
It
is a condition of this Agreement that the portion of the Research Project conducted in Hawaii shall constitute “
Qualified
Research
” as that term is defined in HRS section 235-7.3(c), and Researcher agrees that for each calendar year during
which this Agreement is in effect, through December 31, 2014 (each such calendar year “
Project Year
”
and, together, the “
Project Years
”), it will continue to engage in the Research Project, including enhancements
or expansions of that project, and that, with respect to the KP Research (as defined below), such research shall constitute Qualified
Research. In order to verify compliance with this requirement, Researcher will provide the information for and fully cooperate
with the preparation of a report (the “
Agreed Upon Procedures Report
”) to be prepared for each Project
Year at Kolu Pohaku’s expense by an independent accountant designated by Kolu Pohaku. The Agreed Upon Procedures Report shall
confirm that with respect to the KP Research (as defined below), such research shall constitute Qualified Research. Researcher
will provide Kolu Pohaku with a certificate of the Chief Financial Officer certifying that the financial information provided by
Researcher for preparation of each such Agreed Upon Procedures Report is true and correct in all material respects, and will provide
to Kolu Pohaku an annual financial statement for Researcher for each such year that fully and fairly presents the financial condition
of the Researcher, not later than March 15 of each immediately subsequent year.
1.3
Kolu
Pohaku desires to engage Researcher to perform certain research and development activities in Hawaii (the “
KP Research
”)
consistent with the Research Project in
exchange for Kolu Pohaku’s
payment of a research and development fee to Researcher. The description of and five year budget for the KP Research on behalf
of and for the benefit of Kolu Pohaku is detailed in
Exhibit A
(the “
Budget
”). The KP Research
and this Agreement is for the initial phase of research including the conduct of Phase II clinical trials for the drug candidate
RP-G28 in Hawaii. Subsequent phases of research may be performed by Researcher for Kolu Pohaku depending on the results of this
initial stage. In exchange for the irrevocable, perpetual, exclusive, worldwide right and license to the results of the KP Research
as they are generated hereunder, which Kolu Pohaku grants below and Researcher hereby accepts (the “
License
”),
Researcher will pay to Kolu Pohaku a royalty fee based on the results of the KP Research, as described in Section 9. The foregoing
License includes, without limitation, Researcher’s right to sublicense the KP Research and to make, have made, use, sell,
offer for sale and import products based, in whole or in part, on the KP Research. To the extent permitted by applicable law, improvements
to any such products shall be owned exclusively by licensee. If this provision for improvements is not legal or practicable, Kolu
Pohaku agrees to, and hereby does, assign, license (on an irrevocable, worldwide perpetual, royalty-free, exclusive basis) or take
such other actions as may be necessary in order to secure Researcher’s interest in any improvements hereunder. It is a condition
of this Agreement that the KP Research shall constitute “Qualified Research” as that term in defined in HRS section
235-7.3(c), and shall be performed exclusively by or for the Researcher and exclusively in the State of Hawaii. Researcher acknowledges
that Kolu Pohaku intends that (i) the KP Research will constitute “Qualified Research” as that term is defined in HRS
section 235-7.3(c), (ii) Kolu Pohaku will maintain its status as a QHTB from 2010 through December 31, 2014, by continuing to satisfy
the Activity Test for each such year, and (iii) Kolu Pohaku will verify its status as a QHTB in part, in reliance upon the Agreed
Upon Procedures Reports provided for in Section 1.1, above.
2.
Certain
Definitions
.
2.1
“
Activity
Test
” means more than 50% of its total business activities are Qualified Research and more than 75% of the Qualified
Research is conducted in Hawaii pursuant to HRS 235-10.9.
2.2
“
Agreement
”
means this Research and Development Agreement & License as described in introduction to the Agreement, and any exhibits hereto.
2.3
“
Confidential
Information
” includes scientific, business, or financial information pertaining to the KP Research and/or the Research
Project that is designated as confidential by Provider (defined below). Confidential Information does not include information that:
(i) is in the public domain other than as a result of a disclosure by Recipient (defined below) or any of Recipient’s representatives
in violation of this Agreement; (ii) was in the possession of Recipient before disclosure by the Provider; (iii) is acquired by
Recipient from a third party having no obligation of confidentiality to Provider; (iv) is hereafter independently developed by
Recipient, without reference to Confidential Information received from Provider; or (v) Provider expressly authorizes Recipient
to disclose.
2.4
“
HRS
”
means Hawaii Revised Statutes.
2.5
“
Investment
”
means investment as described in HRS section 235-1.
2.6
“
Invention
”
means any invention or discovery that is or may be patentable or protectable under applicable laws.
2.7
“
Kolu
Pohaku
” means Kolu Pohaku Technologies, LLC as described in introduction to the Agreement.
2.8
“
KP
Research
” means that portion of the Research Project funded by the R&D Fees paid by Kolu Pohaku to Researcher as
described in Section 1.3 and
Exhibit A
hereto.
2.9
“
Material
Market Event
” means an event described in Section 9.3 herein.
2.10
“
Party
”
means “Party” or “Parties” as described in introduction to the Agreement.
2.11
“
Provider
”
means the Party that provides Confidential Information to the other Party under this Agreement.
2.12
“
QHTB
”
means Qualified High Technology Business as described in HRS section 235-110.9.
2.13
“
QHTB
Credits
” means the High Technology Business Investment Tax credits as described in HRS section 235-110.9.
2.14
“
Qualified
Research
” means qualified research as that term is defined in HRS section 235-7.3.
2.15
“
R&D
Fee
” means the installment payments by Kolu Pohaku described in Section 7.
2.16
“
Recipient
”
means the Party that receives Confidential Information from the other Party under this Agreement.
2.17
“
Researcher
”
means Ritter Pharmaceuticals, Inc. as described in introduction to the Agreement.
2.18
“
Research
Project
” means the portion of the Researcher’s overall and ongoing research project described in Section 1.1 above,
performed for and on its own behalf.
2.19
“
Royalty
Payments
” means the quarterly royalty payments by Researcher to Kolu Pohaku described in Section 9 herein.
2.20
“
State
”
shall mean the State of Hawaii.
2.21
“
Term
”
means term of this agreement as described in Section 4.
3.
Engagement
.
Kolu Pohaku hereby engages Researcher to perform the KP Research in connection with and in addition to Researcher’s ongoing
Research Project activities. The KP Research shall be performed in Hawaii from the effective date set forth above through December
31, 2014, provided that this Agreement remains in effect. Nothing in this Agreement shall be
construed to limit the freedom
of either Party from engaging in similar research with other parties, providing the research does not create a conflict with the
Parties’ obligations under this Agreement. Researcher shall begin the Research Project in 2010 and perform the portion of
the KP Research in 2010 more specifically described in
Exhibit A
. In each of the four subsequent years, provided that this
Agreement remains in effect, Researcher shall perform a portion of the KP Research. During the term of this Agreement, Researcher
shall not accept any other research and development funding pursuant to any transaction in Hawaii without the prior written consent
of Kolu Pohaku granted in the exercise of its sole discretion.
4.
Term
.
The term of this Agreement shall be from the effective date first set forth above through December 31, 2035, unless sooner terminated
in accordance herewith (the “
Term
”).
5.
Development
.
Researcher shall use Hawaii facilities, personnel and expertise to conduct the KP Research. From time to time, Researcher shall
provide Kolu Pohaku with written updates of the results of its research and development efforts, but at least once every calendar
quarter, so that Kolu Pohaku can evaluate the progress being made by Researcher. Any material change to the timing, activities
or budget for the KP Research more fully described in
Exhibit A
, must be approved in writing in advance by Kolu Pohaku,
which approval shall not be withheld to the extent such change constitutes Qualified Research and complies with the minimum annual
expenditures set forth in Exhibit B, provided further that if the Parties do not agree that the change constitutes Qualified Research,
Researcher may elect, at its cost, to provide Support (as defined below) and, upon providing such Support, the requested change
shall be approved. “
Support
” shall mean a ruling from the Hawaii Department of Taxation or an opinion
from a Hawaii law firm or accounting firm (with a practice that includes transactions based on HRS section 235-100.9) that the
change should qualify as Qualified Research.
6.
Control
.
Researcher shall have sole and exclusive control over the manner in which Researcher and its employees and contractors perform
the KP Research, and Researcher shall engage and employ such persons as it deems necessary in connection therewith, it being understood
and agreed that such person(s) shall be considered to be solely the employees and contractors of Researcher. Researcher shall at
all times remain primarily responsible for the satisfactory performance of all work and services and may not transfer or assign
such responsibility without the prior written consent of Kolu Pohaku. Researcher acknowledges and agrees that Researcher is an
independent contractor. Researcher acknowledges and agrees that neither Researcher nor any of its employees are employees, partners
or agents of Kolu Pohaku for any purpose including but not limited to, the application of the Federal Insurance Contribution Act,
the Social Security Act, the Federal Unemployment Tax Act, the provisions of the Internal Revenue Code, Hawaii’s Income tax
laws relating to income tax withholding at the source of income, the Hawaii Workers Compensation Code, the Hawaii Prepaid Healthcare
Act, and the Hawaii Temporary Disability Insurance Act.
7.
R&D
Fee
. Kolu Pohaku shall pay to the Researcher Seven Hundred and Fifty Thousand Dollars ($750,000.00) as the research and development
fee (“
R&D Fee
”) for performing the KP Research in 2010 through 2014. Two Hundred Fifty Thousand Dollars
($250,000.00) of the R&D Fee shall be payable upon signing of the Agreement (the “
2010 R&D Fee Installment
”)
and Five Hundred Thousand Dollars ($500,000.00) shall be paid no later than January 10, 2011, provided that the conditions set
forth in Section 8 have been satisfied (the “
2011 R&D Fee
Installment
”).
Researcher agrees that the R&D Fee will be disbursed to Researcher in amounts corresponding to, and within five (5) business
days of the receipt of, each request for a disbursement from Researcher unless Kolu Pohaku objects in writing to such request in
such time period (each such amount, an “
R&D Disbursement
”). Notwithstanding the foregoing sentence,
the Parties agree that the 2010 R&D Fee Installment shall be disbursed upon execution of this Agreement and shall be considered
an R&D Disbursement for all purposes hereunder. Researcher agrees that a minimum amount of KP Research will be performed in
each year of the Agreement as provided in Exhibit B. Researcher further agrees that the payments set forth in this Agreement shall
be full and complete compensation for all obligations and deliverables by Researcher under this Agreement and for all inventions,
developments and improvements assigned under this Agreement, if any. Researcher specifically agrees that Kolu Pohaku shall not
be responsible for any costs of overhead, salaries, materials or other expenses, except as set forth herein. Not later than March
15 of each year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher (i) setting
forth in reasonable detail the application of the R&D Fee performed to date pursuant to the funding of the KP Research, (ii)
demonstrating that not less than 100% of such funding was applied toward the KP Research, and (iii) certifying that the KP Research
has not been funded from the proceeds of any other third party agreement such that the third party has ownership of any of the
results of the KP Research.
8.
Conditions
Precedent to Payment of the 2011 R&D Fee Installment
. The payment of the 2011 R&D Fee Installment shall be subject
to the satisfaction (or written waiver thereof by Kolu Pohaku) of the following conditions precedent:
8.1
Location
.
Verification in the form of a certificate from an authorized officer of Researcher that at least Fifty Thousand Dollars ($50,000.00)
of the KP Research activity corresponding to the 2010 R&D Fee Installment was performed in 2010 in Hawaii in conjunction with
the Research Project for the benefit of and on behalf of Kolu Pohaku, in accordance with the Budget;
8.2
Operations
and Funding
. Verification in the form of a certificate from an authorized officer of Researcher, supported and accompanied
by receipts for each expenditure, that any portion of the 2010 R&D Fee Installment beyond the initial Fifty Thousand Dollars
($50,000.00) of the Research Project that was performed prior to January 10, 2011, was performed in Hawaii, in accordance with
the Budget.
9.
License
and Royalty Payments
.
9.1
Grant
of License
. In exchange for Researcher’s commitment to pay the Royalty Payments set forth in Section 9.2, Kolu Pokaku
hereby grants the License to Researcher.
9.2
Quarterly
Royalty Payment
. Commencing with an initial payment on March 31, 2015, and continuing through December 31, 2035, at the expiration
of each calendar quarter (i.e., March 31, June 30, September 30, December 31, etc.), Researcher, shall pay to Kolu Pohaku a royalty
payment of Fifteen Thousand Dollars ($15,000.00) (each a “
Royalty Payment
”) for the license and use of
the results of the KP Research. In the event any Royalty Payment is not paid on or before its due date, interest shall accrue on
such amount at the rate of 12% per annum compounded annually.
10.
Exchange
of Information
. During the Term the Parties shall consult as necessary and shall exchange any information reasonably necessary
to achieve the purposes of this Agreement. Kolu Pohaku and Researcher will, upon the reasonable request of the other Party, arrange
meetings of their respective personnel, at reasonable times and places, to review the progress of the KP Research and Researcher’s
research and development efforts in the Research Project as a whole.
11.
Disclosure
and Ownership of Developments
.
11.1
KP
Research
. Researcher shall disclose and transfer to Kolu Pohaku all inventions, developments and/or improvements (a) arising
out of the performance of this Agreement, or (b) arising out of the KP Research and conceived by Researcher’s employees,
consultants, independent contractors, agents or other personnel. Kolu Pohaku shall own the results of the KP Research, as set forth
herein.
11.2
Research
Project
. Except for the results of the KP Research, Researcher shall own the results of the Research Project.
11.3
Inventions
.
Any inventions, developments or improvements (a) arising out of the performance of this Agreement or (b) arising out of the KP
Research and conceived by employees, consultants, independent contractors, agents or other personnel of Researcher during this
Agreement or within six (6) months after termination or expiration of this Agreement, shall be the property of Kolu Pohaku. Researcher
shall have all its employees, consultants, independent contractors, agents and other personnel with access to such inventions,
developments or improvements sign agreements to transfer all their rights in and to such inventions, developments or improvements
to Researcher prior to having such personnel work under this Agreement. All expenses involved in obtaining any such patent shall
be borne by Researcher. Researcher agrees that none of its personnel who will perform work under this Agreement will be under any
obligation to transfer, assign or license any inventions, developments or improvements to any third parties. Notwithstanding the
foregoing, in the event of a material breach of this Agreement by Researcher, Kolu Pohaku shall be granted a royalty free and exclusive
perpetual license of the work product of Researcher relating to the KP Research, in addition to any other remedies provided for
herein.
12.
Confidential
Information
. It is understood that any Confidential Information owned by either Party prior to this Agreement and transmitted
to the other Party prior to this Agreement shall remain the property of the Provider. It is further understood that any inventions,
developments, improvements or other information conceived or developed pursuant to this Agreement shall be “Confidential
Information” and shall be the sole property of Kolu Pohaku. Both Parties shall take all reasonable precautions to maintain
the Confidential Information in the strictest confidence, including restricting access to the Confidential Information to those
persons in their respective organizations with a need to know the Confidential Information. Both Parties shall also take all reasonable
precautions to advise their employees, consultants, independent contractors, agents and other personnel who have access to the
Confidential Information of this confidentiality obligation and to require that they execute appropriate agreements to protect
the confidentiality of the Confidential Information.
13.
Miscellaneous
.
13.1
Notices
.
Notices required under this Agreement shall be in writing and shall be sent to by overnight courier, hand delivery, mail, telecopier
or other reliable electronic means to the intended recipient of such notice at the address previously provided by such person.
Any such notice so sent shall be deemed to have been given (i) upon delivery if given by overnight couriers or hand delivery, (ii)
three business days after depositing the notice in the U.S. mails, or (iii) upon confirmation if given by telecopier or other reliable
electronic means.
13.2
Application
of Hawaii Law; Venue
. This Agreement shall be construed and enforced in accordance with the laws of the State of Hawaii. Any
dispute between the parties arising out of or in connection with this Agreement will be resolved exclusively by the State and Federal
courts located in the State of Hawaii and having appropriate jurisdiction over the Parties.
13.3
Litigation
Expenses
. If a Party resorts to litigation to remedy a breach of this Agreement by the other Party, then the prevailing Party
in the litigation, in addition to any other remedies available to said Party under this Agreement or by law, may collect its attorneys’
fees and other costs and expenses of such litigation.
13.4
Amendments
.
This Agreement may not be amended except by the written agreement of all Parties.
13.5
Headings
.
The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof.
13.6
Severability
.
If any provision of this Agreement or the application thereof to any Party or circumstance shall be invalid, illegal, or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
13.7
Counterparts
.
This Agreement may be executed in one or more counterparts each of which shall for all purposes be deemed an original and all of
such counterparts, taken together, shall constitute one and the same Agreement.
13.8
Gender
.
Words used herein, regardless of the number or gender specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
13.9
Successors,
and Assigns
. Each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure
to the benefit of the parties hereto and, to the extent permitted by this Agreement and by applicable law, their respective successors
and assigns.
13.10
Creditors
and Other Third Parties
. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors
of a Party or by other third parties.
13.11
No
Party Deemed Drafter
. The Parties agree that no Party shall be deemed to be the drafter of this Agreement and further that
in the event that this Agreement is ever construed by a court of law, such court shall not construe this Agreement or any provision
of this Agreement against any Party as the drafter of the Agreement.
13.12
Assignment
.
No assignment of this Agreement or the rights and obligations hereunder shall be valid without the specific written consent of
both Parties hereto.
13.13
Remedies
in Equity
. The rights and remedies of any Party hereunder shall not be mutually exclusive, and the exercise of one or more
of the provisions hereof shall not preclude the exercise of any other provisions hereof. Each Party confirms that damages at law
may be an inadequate remedy for a breach or threatened breach of this Agreement and agrees that, in the event of a breach or threatened
breach of any provision hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction
or equitable remedy, but nothing herein contained is intended to, nor shall it, limit or affect any rights at law or by statute
or otherwise of any Party aggrieved as against the other for a breach or threatened breach of any provisions hereof, it being the
intention by this Section to make clear the agreement of the parties that the respective rights and obligations of the parties
hereunder shall be enforceable in equity as well as at law or otherwise.
13.14
Authority
to Enter into Agreement
. By execution of this Agreement below, each Party represents and covenants that it has all necessary
legal right, power, and authority to enter into and perform this Agreement. The execution and delivery by each Party of this Agreement
and the performance by the Party of its obligations hereunder have been duly authorized and approved by all requisite corporate
action or otherwise. This Agreement has been executed and delivered by a duly authorized officer or representative of the Party,
and constitutes a valid and legally binding obligation of the Party, enforceable against the Party in accordance with its terms
(except to the extent that enforcement may be affected by laws relating to bankruptcy, reorganization, insolvency and creditors’
rights and by the availability of injunctive relief, specific performance, and other equitable remedies). Neither the execution
and delivery of this Agreement by the Party, nor the consummation by the Party of the transaction contemplated hereby, will conflict
with or result in a breach of any of the terms, conditions or provisions of the Party’s governing documents or of any statute
or administrative regulation, or of any order, writ, injunction, judgment, or decree of any court or governmental authority or
of any arbitration award to which the Party is a party or by which the Party is bound.
13.15
Survival
.
The Parties’ obligations under Sections 11, 12 and 13 shall survive termination of this Agreement for any reason.
[Signature page to follow]
IN WITNESS WHEREOF, the
parties have caused this agreement to be executed in duplicate by their duly authorized representatives.
|
|
KOLU POHAKU TECHNOLOGIES, LLC
|
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
Its
|
President
|
|
|
|
|
|
|
KOLU POHAKU MANAGEMENT, LLC
|
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
Its
|
President
|
|
|
|
|
|
|
RITTER PHARMACEUTICALS, INC.
|
|
|
|
|
|
|
By
|
/s/ Andrew J. Ritter
|
|
|
|
Its
|
Exhibit A
Description of KP Research
to be performed on behalf of and for the benefit of Kolu Pohaku
[Description of Annual R&D
Activities (2010-2014) and Budgets attached hereto]
The KP Research that the
Researcher will perform pursuant to the Agreement will be based on and add to or supplement the Research Project described above.
The KP Research will be maintained and conducted separately. The details and scope of the research that will constitute KP Research
will be provided to Kolu Pohaku in Researcher’s regular reporting and the scope will be directed and further defined based
on the results that are achieved.
Description of Annual R&D
Activities (2010-2014) and Budgets
|
|
|
2010
|
|
|
2011
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Supply
|
|
$
|
60,000
|
|
|
$
|
15,000
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinic
|
|
$
|
37,555
|
|
|
$
|
365,200
|
|
|
$
|
402,755
|
|
|
Subject Cost (Attachment A)
|
|
$
|
10,000
|
|
|
$
|
265,000
|
|
|
$
|
275,000
|
|
|
Parking Hawaii
|
|
$
|
1,000
|
|
|
$
|
6,000
|
|
|
$
|
7,000
|
|
|
Screen Failure
|
|
$
|
5,000
|
|
|
$
|
47,000
|
|
|
$
|
52,000
|
|
|
IRB Fees
|
|
$
|
1,155
|
|
|
$
|
-
|
|
|
$
|
1,155
|
|
|
Recruitment Allowance
|
|
$
|
10,000
|
|
|
$
|
23,000
|
|
|
$
|
33,000
|
|
|
Start-up Fees
|
|
$
|
5,400
|
|
|
$
|
-
|
|
|
$
|
5,400
|
|
|
HBT Machines
|
|
$
|
-
|
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
|
Validation Study
|
|
$
|
5,000
|
|
|
$
|
20,000
|
|
|
$
|
25,000
|
|
|
Archiving Fees
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Research Organization
|
|
$
|
14,500
|
|
|
$
|
229,000
|
|
|
$
|
243,500
|
|
|
Project Management
|
|
$
|
5,000
|
|
|
$
|
60,000
|
|
|
$
|
65,000
|
|
|
Trial Master File
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Data Management (Attachment B)
|
|
$
|
5,000
|
|
|
$
|
17,500
|
|
|
$
|
22,500
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
2,000
|
|
|
$
|
22,000
|
|
|
$
|
24,000
|
|
|
Clin Study Report (Attachment B)
|
|
$
|
-
|
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Teleconferences/Team Meetings (Attachment B)
|
|
$
|
1,000
|
|
|
$
|
2,000
|
|
|
$
|
3,000
|
|
|
Medical Monitor (Jon Ruckle)
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
Clinical Monitoring
|
|
$
|
-
|
|
|
$
|
96,000
|
|
|
$
|
96,000
|
|
|
Administrative Set-up/Site Management
|
|
$
|
1,500
|
|
|
$
|
10,100
|
|
|
$
|
11,600
|
|
|
Initiation Visit
|
|
$
|
-
|
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
Process Monitoring Visit
|
|
$
|
-
|
|
|
$
|
12,800
|
|
|
$
|
12,800
|
|
|
Routine Monitoring Visit
|
|
$
|
-
|
|
|
$
|
30,400
|
|
|
$
|
30,400
|
|
|
Close-Out Visit
|
|
$
|
-
|
|
|
$
|
11,200
|
|
|
$
|
11,200
|
|
|
Pass-through Estimates
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Expenses
|
|
$
|
-
|
|
|
$
|
33,000
|
|
|
$
|
33,000
|
|
|
Liability Insurance
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
Travel
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
112,055
|
|
|
$
|
642,200
|
|
|
$
|
754,255
|
|
*Expenses based on estimated
performed work
Exhibit B
Minimum Annual KP Research
|
Calendar Year
|
|
Annual Minimum KP Research to be performed
|
|
|
|
|
|
|
|
2010
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
2011
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
2012
|
|
$
|
37,500
|
|
|
|
|
|
|
|
|
2013
|
|
$
|
37,500
|
|
|
|
|
|
|
|
|
2014
|
|
$
|
37,500
|
|
Exhibit 10.18
RITTER PHARMACEUTICALS,
INC.
AMENDMENT NO. 1 TO
RESEARCH AND DEVELOPMENT
AGREEMENT & LICENSE
This Amendment No. 1 (the
“
Amendment
”) to the Research and Development Agreement & License, dated as of November 17, 2010 (the “
Original
Agreement
”), is made and entered into as of July
6
, 2011, pursuant to Section 13.4 of the Original Agreement,
by and among
KOLU POHAKU TECHNOLOGIES, LLC
, a Delaware limited liability company (together with its successors and assigns,
“
Kolu Pohaku
”);
KOLU POHAKU MANAGEMENT, LLC
, a Delaware limited liability company (together with
its successors and assigns, “
KPM
”); and
RITTER PHARMACEUTICALS, INC.
, a Delaware corporation (together
with its successors and assigns, the “
Company
”). Capitalized terms used in this Amendment that are not
otherwise defined herein shall have the respective meanings assigned to them in the Original Agreement.
RECITALS
WHEREAS
, the Company,
Kolu Pohaku and KPM are parties to the Original Agreement;
WHEREAS
, the parties
wish to amend the Original Agreement in the manner set forth below in order to fund additional Qualified Research activities in
accordance with the terms of the Original Agreement; and
WHEREAS
, the Original
Agreement may be amended by written agreement of the parties thereto.
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
Section
2.15 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
“
2010
R&D Fee
” means the installment payments by Kolu Pohaku described in Section 7.
2.
Section
2.19 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
“
Royalty
Payments
” means the 2010 Royalty Payments and the 2011 Royalty Payments by Researcher to Kolu Pohaku described in Section
9 herein.
3.
Section
7 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
R&D Fee
.
7.1
2010
R&D Fee
. Kolu Pohaku shall pay to the Researcher Seven Hundred and Fifty Thousand Dollars ($750,000.00) as the research
and development fee (“
2010 R&D Fee
”) for performing the KP Research in 2010 through 2014. Two Hundred
Fifty Thousand Dollars ($250,000.00) of the R&D Fee shall be payable upon signing of the Agreement (the “2010 R&D
Fee Installment”) and Five Hundred Thousand Dollars ($500,000.00) shall be paid no later than January 10, 2011, provided
that the conditions set forth in Section 8 have been satisfied (the “
2011 R&D Fee Installment
”).
Researcher agrees that the R&D Fee will be disbursed to Researcher in amounts corresponding to, and within five (5) business
days of the receipt of, each request for a disbursement from Researcher unless Kolu Pohaku objects in writing to such request in
such time period (each such amount, an “
R&D Disbursement
”). Notwithstanding the foregoing sentence,
the Parties agree that the 2010 R&D Fee Installment shall be disbursed upon execution of this Agreement and shall be considered
an R&D Disbursement for all purposes hereunder. Researcher agrees that a minimum amount of KP Research will be performed in
each year of the Agreement as provided in Exhibit B. Researcher further agrees that the payments set forth in this Agreement shall
be full and complete compensation for all obligations and deliverables by Researcher under this Agreement and for all inventions,
developments and improvements assigned under this Agreement, if any. Researcher specifically agrees that Kolu Pohaku shall not
be responsible for any costs of overhead, salaries, materials or other expenses, except as set forth herein. Not later than March
15 of teach year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher (i) setting
forth in reasonable detail the application of the R&D Fee performed to date pursuant to the funding of the KP Research, (ii)
demonstrating that no less than 100% of such funding was applied toward the KP Research, and (iii) certifying that the KP Research
has not been funded from the proceeds of any other third party agreement such that the third party has ownership of any of the
results of the KP Research.
7.2
2011
R&D Fee
. Kolu Pohaku shall pay to the Researcher Three Hundred Thousand Dollars ($300,000.00) as the research and development
fee (“
2011 R&D Fee
”) for performing the KP Research in 2011. Researcher agrees that the 2011 R&D
Fee will be disbursed to Researcher in amounts corresponding to, and within five (5) business days of the receipt of, each request
for a disbursement from Researcher unless Kolu Pohaku objects in writing to such request in such time period (each such amount,
an “
R&D Disbursement
”). Researcher further agrees that the payments set forth in this Agreement shall
be full and complete compensation for all obligations and deliverables by Researcher under this Agreement and for all inventions,
developments and improvements assigned under this Agreement, if any. Researcher specifically agrees that Kolu Pohaku shall not
be responsible for any costs of overhead, salaries, materials or other expenses, except as set forth herein. Not later than March
15 of teach year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher (i) setting
forth in reasonable detail the application of the 2011 R&D Fee performed to date pursuant to the funding of the KP Research,
(ii) demonstrating that no less than 100% of such funding was applied toward the KP Research, and (iii) certifying that the KP
Research has not been funded from the proceeds of any other third party
agreement such
that the third party has ownership of any of the results of the KP Research.
4.
Section
9 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
License and Royalty Payments
.
9.1
Grant
of License
. In exchange for Researcher’s commitment to pay the Royalty Payments set forth in Sections 9.2 and 9.3, Kolu
Pohaku hereby grants the License to Researcher.
9.2
2010
Quarterly Royalty Payment
. Commencing with an initial payment on March 31, 2015, and continuing through December 31, 2035,
at the expiration of each calendar quarter (i.e., March 31, June 30, September 30, December 31, etc.), Researcher shall pay to
Kolu Pohaku a royalty payment of Fifteen Thousand Dollars ($15,000.00) (each a “
2010 Royalty Payment
”)
for the license and use of the results of the KP Research. In the event any Royalty Payment is not paid on or before its due date,
interest shall accrue on such amount at the rate of 12% per annum compounded annually.
9.3
2011
Quarterly Royalty Payment
. Commencing with an initial payment on March 31, 2015, and continuing through December 31, 2035,
at the expiration of each calendar quarter (i.e., March 31, June 30, September 30, December 31, etc.), Researcher shall pay to
Kolu Pohaku a royalty payment of Six Thousand Dollars ($6,000.00) (each a “
2011 Royalty Payment
”) for
the license and use of the results of the KP Research. In the event any Royalty Payment is not paid on or before its due date,
interest shall accrue on such amount at the rate of 12% per annum compounded annually.
5.
Exhibit
A of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
6.
Exhibit
B of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
7.
Except
as expressly set forth in this Amendment, the Original Agreement shall continue in full force and effect in accordance with its
terms.
8.
This
Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.
All
corporate action on the part of the Company and its directors, officers, and stockholders necessary for the authorization, execution,
and delivery of this Amendment by the Company has been taken as of the date hereof.
10.
This
Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Hawaii, without reference
to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
|
|
KOLU POHAKU TECHNOLOGIES, LLC
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
|
Thomas Adamek, President
|
|
|
|
|
|
KOLU POHAKU MANAGEMENT, LLC
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
|
Thomas Adamek, President
|
|
|
|
|
|
RITTER PHARMACEUTICALS, INC.
|
|
|
|
|
|
By
|
/s/ Andrew J. Ritter
|
|
|
|
Andrew Ritter, President and CEO
|
Signature Page to Amendment
No. 1 to
First Amendment to Research and Development Agreement & License
Exhibit A
Description of KP Research
to be performed on behalf of and for the benefit of Kolu Pohaku
[Description of Annual R&D
Activities (2010-2014) and Budgets attached hereto]
The KP Research that the
Researcher will perform pursuant to the Agreement will be based on and add to or supplement the Research Project described above.
The KP Research will be maintained and conducted separately. The details and scope of the research that will constitute KP Research
will be provided to Kolu Pohaku in Researcher’s regular reporting and the scope will be directed and further defined based
on the results that are achieved.
Exhibit A (continued)
Hawaii Clinical Expenses Pursuant
to the 2010 R&D Agreement
|
|
|
2010
|
|
|
2011
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Supply
|
|
$
|
60,000
|
|
|
$
|
15,000
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinic
|
|
$
|
37,555
|
|
|
$
|
365,200
|
|
|
$
|
402,755
|
|
|
Subject Cost (Attachment A)
|
|
$
|
10,000
|
|
|
$
|
265,000
|
|
|
$
|
275,000
|
|
|
Parking Hawaii
|
|
$
|
1,000
|
|
|
$
|
6,000
|
|
|
$
|
7,000
|
|
|
Screen Failure
|
|
$
|
5,000
|
|
|
$
|
47,000
|
|
|
$
|
52,000
|
|
|
IRB Fees
|
|
$
|
1,155
|
|
|
$
|
-
|
|
|
$
|
1,155
|
|
|
Recruitment Allowance
|
|
$
|
10,000
|
|
|
$
|
23,000
|
|
|
$
|
33,000
|
|
|
Start-up Fees
|
|
$
|
5,400
|
|
|
$
|
-
|
|
|
$
|
5,400
|
|
|
HBT Machines
|
|
$
|
-
|
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
|
Validation Study
|
|
$
|
5,000
|
|
|
$
|
20,000
|
|
|
$
|
25,000
|
|
|
Archiving Fees
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Research Organization
|
|
$
|
14,500
|
|
|
$
|
229,000
|
|
|
$
|
243,500
|
|
|
Project Management
|
|
$
|
5,000
|
|
|
$
|
60,000
|
|
|
$
|
65,000
|
|
|
Trial Master File
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Data Management (Attachment B)
|
|
$
|
5,000
|
|
|
$
|
17,500
|
|
|
$
|
22,500
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
2,000
|
|
|
$
|
22,000
|
|
|
$
|
24,000
|
|
|
Clin Study Report (Attachment B)
|
|
$
|
-
|
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Teleconferences/Team Meetings (Attachment B)
|
|
$
|
1,000
|
|
|
$
|
2,000
|
|
|
$
|
3,000
|
|
|
Medical Monitor (Jon Ruckle)
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
Clinical Monitoring
|
|
$
|
-
|
|
|
$
|
96,000
|
|
|
$
|
96,000
|
|
|
Administrative Set-up/Site Management
|
|
$
|
1,500
|
|
|
$
|
10,100
|
|
|
$
|
11,600
|
|
|
Initiation Visit
|
|
$
|
-
|
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
Process Monitoring Visit
|
|
$
|
-
|
|
|
$
|
12,800
|
|
|
$
|
12,800
|
|
|
Routine Monitoring Visit
|
|
$
|
-
|
|
|
$
|
30,400
|
|
|
$
|
30,400
|
|
|
Close-Out Visit
|
|
$
|
-
|
|
|
$
|
11,200
|
|
|
$
|
11,200
|
|
|
Pass-through Estimates
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Expenses
|
|
$
|
-
|
|
|
$
|
33,000
|
|
|
$
|
33,000
|
|
|
Liability Insurance
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
Travel
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
112,055
|
|
|
$
|
642,200
|
|
|
$
|
754,255
|
|
*Expenses based on estimated
performed work
Exhibit A-1
Hawaii Clinical Expenses for
2011
Pursuant to Amendment No.
1 to the R&D Agreement
|
Operations
|
|
KP Research
to be performed
|
|
|
|
|
|
|
|
General Expenses
|
|
$
|
8,000
|
|
|
Consultants
|
|
$
|
7,000
|
|
|
Subtotal Operations
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
Clinic
|
|
|
|
|
|
Clinical Supply
|
|
$
|
60,000
|
|
|
CRO/Clinic
|
|
$
|
210,000
|
|
|
Clinic Staff
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
Subtotal Clinic
|
|
$
|
285,000
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
300,000
|
|
Exhibit B
Minimum Annual KP Research
Pursuant to Amendment No.
1 to the R&D Agreement
|
Calendar
Year
|
|
Annual
Minimum KP Research to be performed
|
|
|
|
|
|
2010
|
|
$50,000
|
|
|
|
|
|
2011
|
|
$400,000 - See Exhibit
A
$300,000 - See Exhibit
A-1
|
|
|
|
|
|
2012
|
|
$37,500
|
|
|
|
|
|
2013
|
|
$37,500
|
|
|
|
|
|
2014
|
|
$37,500
|
Exhibit 10.19
RITTER PHARMACEUTICALS,
INC.
AMENDMENT NO. 2 TO
RESEARCH AND DEVELOPMENT
AGREEMENT & LICENSE
This Amendment No. 2 (the
“
Amendment
”) to the Research and Development Agreement & License, dated as of November 17, 2010, and first
amended on July 6, 2011 (as amended to date, the “
Original Agreement
”), is made and entered into as of September
30, 2011, pursuant to Section 13.4 of the Original Agreement, by and among
KOLU POHAKU TECHNOLOGIES, LLC
, a Delaware limited
liability company (together with its successors and assigns, “
Kolu Pohaku
”);
KOLU POHAKU MANAGEMENT,
LLC
, a Delaware limited liability company (together with its successors and assigns, “
KPM
”); and
RITTER PHARMACEUTICALS, INC.
, a Delaware corporation (together with its successors and assigns, the “
Company
”).
Capitalized terms used in this Amendment that are not otherwise defined herein shall have the respective meanings assigned to them
in the Original Agreement.
RECITALS
WHEREAS
, the Company,
Kolu Pohaku and KPM are parties to the Original Agreement;
WHEREAS
, the parties
wish to amend the Original Agreement in the manner set forth below in order to fund additional Qualified Research activities in
accordance with the terms of the Original Agreement; and
WHEREAS
, the Original
Agreement may be amended by written agreement of the parties thereto.
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
Section
2.19 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
“
Royalty
Payments
” means the 2010 Royalty Payments, the 2011 Royalty Payments and the 2012 Royalty Payments by Researcher to Kolu
Pohaku described in Section 9 herein.
2.
7
of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
R&D Fee
.
7.1
2010
R&D Fee
. Kolu Pohaku shall pay to the Researcher Seven Hundred and Fifty Thousand Dollars ($750,000.00) as the research
and development fee (“
2010 R&D Fee
”) for performing the KP Research in 2010 through 2014. Two Hundred
Fifty Thousand Dollars ($250,000.00) of the R&D Fee shall be payable upon signing of the
Agreement (the
“
2010 R&D Fee Installment
”) and Five Hundred Thousand Dollars ($500,000.00) shall be paid no later
than January 10, 2011, provided that the conditions set forth in Section 8 have been satisfied (the “
2011 R&D Fee
Installment
”). Researcher agrees that the 2010 R&D Fee will be disbursed to Researcher in amounts corresponding
to, and within five (5) business days of the receipt of each request for a disbursement from Researcher unless Kolu Pohaku objects
in writing to such request in such time period (each such amount, a “
2010 R&D Disbursement
”). Notwithstanding
the foregoing sentence, the Parties agree that the 2010 R&D Fee Installment shall be disbursed upon execution of this Agreement
and shall be considered a 2010 R&D Disbursement for all purposes hereunder. Researcher agrees that a minimum amount of KP Research
will be performed in each year of the Agreement as provided in Exhibit B. Researcher further agrees that the payments set forth
in this Agreement shall be full and complete compensation for all obligations and deliverables by Researcher under this Agreement
and for all inventions, developments and improvements assigned under this Agreement, if any. Researcher specifically agrees that
Kolu Pohaku shall not be responsible for any costs of overhead, salaries, materials or other expenses, except as set forth herein.
Not later than March 15 of each year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher
(i) setting forth in reasonable detail the application of the 2010 R&D Fee performed to date pursuant to the funding of the
KP Research, (ii) demonstrating that no less than 100% of such funding was applied toward the KP Research, and (iii) certifying
that the KP Research has not been funded from the proceeds of any other third party agreement such that the third party has ownership
of any of the results of the KP Research.
7.2
2011
R&D Fee
. Kolu Pohaku shall pay to the Researcher Three hundred Thousand Dollars ($300,000.00) as the research and development
fee (“
2011 R&D Fee
”) for performing certain KP Research in 2011. Researcher agrees that the 2011
R&D Fee will be disbursed to Researcher in amounts corresponding to, and within five (5) business days of the receipt of, each
request for a disbursement from Researcher unless Kolu Pohaku objects in writing to such request in such time period (each such
amount, a “
2011 R&D Disbursement
”). Researcher further agrees that the payments set forth in this
Agreement shall be full and complete compensation for all obligations and deliverables by Researcher under this Agreement and for
all inventions, developments and improvements assigned under this Agreement, if any. Researcher specifically agrees that Kolu Pohaku
shall not be responsible for any costs of overhead, salaries, materials or other expenses, except as set forth herein. Not later
than March 15 of each year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher
(i) setting forth in reasonable detail the application of the 2011 R&D Fee performed to date pursuant to the funding of the
KP Research, (ii) demonstrating that no less than 100% of such funding was applied toward the KP Research, and (iii) certifying
that the KP Research has not been funded from the proceeds of any other third party agreement such that the third party has ownership
of any of the results of the KP Research.
7.3
2012
R&D Fee
. Kolu Pohaku shall pay to the Researcher Two Hundred Fifty Thousand Dollars ($250,000.00) as the research and development
fee (“
2012 R&D Fee
”) for performing certain KP Research in 2012. Researcher agrees that the 2012
R&D Fee will
be disbursed to Researcher upon the effectiveness of this Amendment (such amount, a “
2012 R&D Disbursement
”
and, along with the 2010 R&D Disbursement and 2011 R&D Disbursement, the “R&D Disbursements”). Researcher
further agrees that the payments set forth in this Agreement shall be full and complete compensation for all obligations and deliverables
by Researcher under this Agreement and for all inventions, developments and improvements assigned under this Agreement, if any.
Researcher specifically agrees that Kolu Pohaku shall not be responsible for any costs of overhead, salaries, materials or other
expenses, except as set forth herein. Not later than March 15 of each year, Researcher shall deliver to Kolu Pohaku a certificate
of the Chief Financial Officer of Researcher (i) setting forth in reasonable detail the application of the 2012 R&D Fee performed
to date pursuant to the funding of the KP Research, (ii) demonstrating that no less than 100% of such funding was applied toward
the KP Research, and (iii) certifying that the KP Research has not been funded from the proceeds of any other third party agreement
such that the third party has ownership of any of the results of the KP Research.
3.
Section
9 of the Original Agreement shall be amended by the addition of a new Section 9.4 but shall otherwise remain unchanged:
9.4
2012
Quarterly Royalty Payment
. Commencing with an initial payment on March 31, 2015, and continuing through December 31, 2035,
at the expiration of each calendar quarter (i.e., March 31, June 30, September 30, December 31, etc.), Researcher shall pay to
Kolu Pohaku a royalty payment of Seven Thousand Dollars ($7,000.00) (each a “
2012 Royalty Payment
”) for
the license and use of the results of the KP Research. In the event any Royalty Payment is not paid on or before its due date,
interest shall accrue on such amount at the rate of 12% per annum compounded annually.
4.
Exhibit
A of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
5.
Exhibit
B of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
6.
Except
as expressly set forth in this Amendment, the Original Agreement shall continue in full force and effect in accordance with its
terms.
7.
This
Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
8.
All
corporate action on the part of the Company and its directors, officers, and stockholders necessary for the authorization, execution,
and delivery of this Amendment by the Company has been taken as of the date hereof.
9.
This
Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Hawaii, without reference
to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
|
|
KOLU POHAKU TECHNOLOGIES, LLC
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
|
Thomas Adamek, President
|
|
|
|
|
|
KOLU POHAKU MANAGEMENT, LLC
|
|
|
|
|
|
By
|
/s/ Thomas Adamek
|
|
|
|
Thomas Adamek, President
|
|
|
|
|
|
RITTER PHARMACEUTICALS, INC.
|
|
|
|
|
|
By
|
/s/ Andrew J. Ritter
|
|
|
|
Andrew Ritter, President and CEO
|
Signature Page to Amendment
No. 2 to
First Amendment to Research and Development Agreement & License
Exhibit A
Description of KP Research
to be performed on behalf of and for the benefit of Kolu Pohaku
[Description of Annual R&D
Activities (2010-2014) and Budgets attached hereto]
The KP Research that the
Researcher will perform pursuant to the Agreement will be based on and add to or supplement the Research Project described above.
The KP Research will be maintained and conducted separately. The details and scope of the research that will constitute KP Research
will be provided to Kolu Pohaku in Researcher’s regular reporting and the scope will be directed and further defined based
on the results that are achieved.
Exhibit A (continued)
Hawaii Clinical Expenses Pursuant
to the 2010 R&D Agreement
|
|
|
2010
|
|
|
2011
|
|
|
Total
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Supply
|
|
$
|
60,000
|
|
|
$
|
15,000
|
|
|
$
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinic
|
|
$
|
37,555
|
|
|
$
|
365,200
|
|
|
$
|
402,755
|
|
|
Subject Cost (Attachment A)
|
|
$
|
10,000
|
|
|
$
|
265,000
|
|
|
$
|
275,000
|
|
|
Parking Hawaii
|
|
$
|
1,000
|
|
|
$
|
6,000
|
|
|
$
|
7,000
|
|
|
Screen Failure
|
|
$
|
5,000
|
|
|
$
|
47,000
|
|
|
$
|
52,000
|
|
|
IRB Fees
|
|
$
|
1,155
|
|
|
$
|
-
|
|
|
$
|
1,155
|
|
|
Recruitment Allowance
|
|
$
|
10,000
|
|
|
$
|
23,000
|
|
|
$
|
33,000
|
|
|
Start-up Fees
|
|
$
|
5,400
|
|
|
$
|
-
|
|
|
$
|
5,400
|
|
|
HBT Machines
|
|
$
|
-
|
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
|
Validation Study
|
|
$
|
5,000
|
|
|
$
|
20,000
|
|
|
$
|
25,000
|
|
|
Archiving Fees
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Research Organization
|
|
$
|
14,500
|
|
|
$
|
229,000
|
|
|
$
|
243,500
|
|
|
Project Management
|
|
$
|
5,000
|
|
|
$
|
60,000
|
|
|
$
|
65,000
|
|
|
Trial Master File
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Data Management (Attachment B)
|
|
$
|
5,000
|
|
|
$
|
17,500
|
|
|
$
|
22,500
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Statistical Programming (Attachment B)
|
|
$
|
2,000
|
|
|
$
|
22,000
|
|
|
$
|
24,000
|
|
|
Clin Study Report (Attachment B)
|
|
$
|
-
|
|
|
$
|
8,000
|
|
|
$
|
8,000
|
|
|
Teleconferences/Team Meetings (Attachment B)
|
|
$
|
1,000
|
|
|
$
|
2,000
|
|
|
$
|
3,000
|
|
|
Medical Monitor (Jon Ruckle)
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
Clinical Monitoring
|
|
$
|
-
|
|
|
$
|
96,000
|
|
|
$
|
96,000
|
|
|
Administrative Set-up/Site Management
|
|
$
|
1,500
|
|
|
$
|
10,100
|
|
|
$
|
11,600
|
|
|
Initiation Visit
|
|
$
|
-
|
|
|
$
|
12,000
|
|
|
$
|
12,000
|
|
|
Process Monitoring Visit
|
|
$
|
-
|
|
|
$
|
12,800
|
|
|
$
|
12,800
|
|
|
Routine Monitoring Visit
|
|
$
|
-
|
|
|
$
|
30,400
|
|
|
$
|
30,400
|
|
|
Close-Out Visit
|
|
$
|
-
|
|
|
$
|
11,200
|
|
|
$
|
11,200
|
|
|
Pass-through Estimates
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Expenses
|
|
$
|
-
|
|
|
$
|
33,000
|
|
|
$
|
33,000
|
|
|
Liability Insurance
|
|
$
|
-
|
|
|
$
|
18,000
|
|
|
$
|
18,000
|
|
|
Travel
|
|
$
|
-
|
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
112,055
|
|
|
$
|
642,200
|
|
|
$
|
754,255
|
|
*Expenses based on estimated
performed work
Exhibit A-1
Hawaii Clinical Expenses for
2011
Pursuant to Amendment No.
2 to the R&D Agreement
|
Operations
|
|
KP Research to be performed
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Expenses
|
|
$
|
20,000
|
|
|
$
|
15,000
|
|
|
$
|
35,000
|
|
|
Consultants
|
|
$
|
20,000
|
|
|
$
|
15,000
|
|
|
$
|
35,000
|
|
|
Subtotal Operations
|
|
$
|
40,000
|
|
|
$
|
30,000
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical Supply
|
|
$
|
55,000
|
|
|
$
|
-
|
|
|
$
|
55,000
|
|
|
CRO/Clinic
|
|
$
|
280,000
|
|
|
$
|
130,000
|
|
|
$
|
410,000
|
|
|
Clinic Staff
|
|
$
|
5,000
|
|
|
$
|
10,000
|
|
|
$
|
15,000
|
|
|
Subtotal Clinic
|
|
$
|
340,000
|
|
|
$
|
140,000
|
|
|
$
|
480,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
380,000
|
|
|
$
|
170,000
|
|
|
$
|
550,000
|
|
Exhibit B
Minimum Annual KP Research
Pursuant to Amendment No.
2 to the R&D Agreement
|
Calendar
Year
|
|
Annual
Minimum KP Research to be performed
|
|
|
|
|
|
2010
|
|
$50,000
|
|
2011
|
|
$400,000 - See Exhibit
A
$380,000 - See Exhibit
A-1
|
|
|
|
|
|
2012
|
|
$170,000 – See Exhibit A-1
|
|
|
|
|
|
2013
|
|
$37,500
|
|
|
|
|
|
2014
|
|
$37,500
|
Exhibit 10.20
RITTER PHARMACEUTICALS,
INC.
AMENDMENT NO. 3 TO
RESEARCH AND DEVELOPMENT
AGREEMENT & LICENSE
This Amendment No. 3 (the
“
Amendment
”) to the Research and Development Agreement & License, dated as of November 17, 2010, and amended
on Tidy 6, 2011, and September 30, 2011 (as amended to date, the “
Original Agreement
”), is made and entered
into as of February 6, 2012, pursuant to Section 13.4 of the Original Agreement, by and among
KOLU POHAKU TECHNOLOGIES, LLC
,
a Delaware limited liability company (together with its successors and assigns, “
Kolu Pohaku
”);
KOLU
POHAKU MANAGEMENT, LLC
, a Delaware limited liability company (together • with its successors and assigns, “
KPM
”);
and
RITTER PHARMACEUTICALS, INC.
, a Delaware corporation (together with its successors and assigns, the “
Company
”).
Capitalized terms used in this Amendment that are not otherwise defined herein shall have the respective meanings assigned to them
in the Original Agreement.
RECITALS
WHEREAS
, the Company,
Kolu Pohaku and KPM are parties to the Original Agreement;
WHEREAS
, the parties
wish to amend the Original Agreement in the manner set forth below in order to fund additional Qualified Research activities in
accordance with the terms of the Original Agreement; and
WHEREAS
, the Original
Agreement may be amended by written agreement of the parties thereto.
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
Section
7.3 of the Original Agreement shall be amended and restated in its entirety read as set forth below:
7.3
2012
R&D Fees
.
(a) Kolu
Pohaku shall pay to the Researcher Two Hundred Fifty Thousand Dollars ($250,000.00) as the research and development fee (“
Initial
2012 R&D Fee
”) for performing certain KP Research in 2012. Researcher agrees that the Initial 2012 R&D Fee
has been disbursed to Researcher in accordance with the Agreement (such amount, the “
Initial 2012 R&D Disbursement
”
and, along with the 2010 R&D Disbursement and 2011 R&D Disbursement, the “
Class I R&D Disbursements
”).
Researcher further agrees that the payments set forth in the Agreement shall be full and complete compensation for all obligations
and deliverables by Researcher under this Agreement and for all inventions, developments and improvements assigned under this Agreement,
if any. Researcher specifically agrees that Kolu Pohaku shall not be responsible for any
costs of overhead,
salaries, materials or other expenses, except as set forth herein. Not later than March 15 of each year, Researcher shall deliver
to Kolu Pohaku a certificate of the Chief Financial Officer of Researcher (i) setting forth in reasonable detail the application
of the Initial 2012 R&D Fee performed to date pursuant to the funding of the KP Research, (ii) demonstrating that no less than
100% of such funding was applied toward the KP Research, and (iii) certifying that the KP Research has not been funded from the
proceeds of any other third party agreement such that the third party has ownership of any of the results of the KP Research.
(b) Kolu
Pohaku shall pay to the Researcher Three Hundred Thousand Dollars ($300,000.00) as the research and development fee (“
Secondary
2012 R&D Fee
” and, along with the Initial 2012 R&D Fee, the “
2012 R&D Fees
”)
for performing certain KP Research in 2012. Researcher agrees that the Secondary 2012 R&D Fee will be disbursed to Researcher
upon the effectiveness of this Amendment (such amount, the “
Class II R&D Disbursement
” and, along
with the Class I R&D Disbursements, the “
R&D Disbursements
”). Researcher further agrees that
the payments set forth in this Agreement shall be full and complete compensation for all obligations and deliverables by Researcher
under this Agreement and for all inventions, developments and improvements assigned under this Agreement, if any. Researcher specifically
agrees that Kolu Pohaku shall not be responsible for any costs of overhead, salaries, materials or other expenses, except as set
forth herein. Not later than March 15 of each year, Researcher shall deliver to Kolu Pohaku a certificate of the Chief Financial
Officer of Researcher (i) setting forth in reasonable detail the application of the Secondary 2012 R&D Fee performed to date
pursuant to the funding of the KT’ Research, (ii) demonstrating that no less than 100% of such funding was applied toward
the KP Research, and (iii) certifying that the KP Research has not been fended from the proceeds of any other third party agreement
such that the third party has ownership of any of the results of the KY Research.
(c) All
R&D Fees shall be deposited into a separate bank account designated specifically for R&D Disbursements to he used solely
for Qualified Research. Kolu Pohaku shall at all times retain signing authority over Researcher’s use of the R&D Disbursements.
From and after the date of this Amendment, before Researcher may utilize any of the R&D Disbursements to pay for any expenses
it must, in each case, obtain from Kolu Pohaku a pre-audit certification in the form attached hereto as Exhibit C (the “Pre-audit
Certification”). Such certification shall not be unreasonably withheld.
2.
Section
9.1 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
9.1
Grant
of License
. In exchange for Researchers commitment to pay the Royalty Payments set forth in Sections 9.2, 9.3, and 9.4, Kolu
Pokaku hereby grants the License to Researcher.
3.
Section
9.4 of the Original Agreement shall be amended and restated in its entirety to read as set forth below:
9.4
2012
Quarterly Royalty Payment
. Commencing with an initial payment on March 31, 2015, and continuing through December 31, 2035,
at the expiration of each calendar quarter (i.e., March 31, June 30, September 30, December 31, etc.), Researcher shall pay 10
Kolu Pohaku a royalty payment of Eleven ‘Thousand Dollars ($11,000.00) (each a “
2012 Royalty Payment
”)
for the license and use of the results of the KP Research. In the event any Royalty Payment is not paid on or before its due date,
interest shall accrue on such amount at the rate of 12% per annum compounded arm’ tally.
4.
Exhibit
A of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
5.
Exhibit
B of the Original Agreement shall be amended and restated in its entirety to read as attached to this Amendment.
6.
The
Original Agreement shall he amended by the addition of a new Exhibit C hereto.
7.
Except
as expressly set forth in this Amendment, the Original Agreement shall continue in full force and effect in accordance with its
terms.
8.
This
Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.
All
corporate action on the part of the Company and its directors, officers, and stockholders necessary for the authorization, execution,
and delivery of this Amendment by the Company has been taken as of the date hereof
10.
This
Amendment shall be governed by and construed and enforced in accordance with the laws of the State of Hawaii, without reference
to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
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KOLU POHAKU TECHNOLOGIES, LLC
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By
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/s/ Thomas Adamek
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Thomas Adamek, President
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KOLU POHAKU MANAGEMENT, LLC
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By
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/s/ Thomas Adamek
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Thomas Adamek, President
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RITTER PHARMACEUTICALS, INC.
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By
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/s/ Andrew J. Ritter
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Andrew Ritter, President and CEO
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Signature Page to Amendment No. 3 to
Research and Development
Agreement & License
Exhibit 10.21
RITTER PHARMACEUTICALS,
INC.
AMENDMENT NO. 4 TO
RESEARCH AND DEVELOPMENT
AGREEMENT & LICENSE
This Amendment No. 4 (the
“
Amendment
”) to the Research and Development Agreement & License, dated as of November 17, 2010, and amended
on July 6, 2011, September 30, 2011 and February 6, 2012 (as amended to date, the “
Original Agreement
”), is
made and entered into as of November 4, 2013, pursuant to Section 13.4 of the Original Agreement, by and among
KOLU POHAKU TECHNOLOGIES,
LLC
, a Delaware limited liability company (together with its successors and assigns, “
Kolu Pohaku
”);
KOLU POHAKU MANAGEMENT, LLC
, a Delaware limited liability company (together with its successors and assigns, “
KPM
”);
and
RITTER PHARMACEUTICALS, INC.
, a Delaware corporation (together with its successors and assigns., the “
Company
”).
Capitalized terms used in this Amendment that are not otherwise defined herein shall have the respective meanings assigned to them
in the Original. Agreement.
RECITALS
WHEREAS
, the Company,
Kolu Pohaku and KPM are parties to the Original Agreement;
WHEREAS
, the parties
wish to amend the Original Agreement in the manner set forth below in order to fund additional activities in accordance with the
terms of [he Original Agreement; and
WHEREAS
, the Original
Agreement may be amended by written agreement of the parties thereto.
NOW, THEREFORE
,
the parties hereto hereby agree as follows:
AGREEMENT
1.
Section 2.15 is hereby amended and restated to read as follows:
2.15 “
R&D
Fee
” means the installment payments by Kolu Pohaku described in Section 7, other than Section 7.4.
2.
A new Section 7.4 shall be added to the Original Agreement reading as follows:
7.4
2014
Fee
. Kolu Pohaku shall pay to Researcher a fee (the “
2014 Fee
”) of One Hundred Fifty Thousand Dollars
($150,000.00) for activities that may include, but shall not limited to, KP Research, provided, however, that Researcher may not
utilize the 2014 Fee, or any portion thereof, prior to January 1, 2014, without Kolu Pohaku’s express written consent. Researcher
agrees that the 2014 Fee has been disbursed to Researcher in accordance with the Agreement (such amount, the “
2014
Disbursement
”) and shall be included, for all purposes, in the definition of Class 1 R&D Disbursements
set forth above.
Researcher further agrees that the payments set forth in the Agreement shall be full and complete compensation for all obligations
and deliverables by Researcher under this Agreement and for all inventions, developments and improvements assigned under this Agreement,
if any. Researcher specifically agrees that Kolu Pohaku shall not be responsible for any costs of overhead, salaries, materials
or other expenses, except as set forth herein.
3.
Except as expressly set forth in this Amendment, the Original Agreement shall
continue in full force and effect in accordance with its terms.
4.
This Amendment may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the same instrument,
5.
All corporate action on the part of the Company and its directors, officers, and
stockholders necessary for the authorization, execution, and delivery of this Amendment by the Company has been taken as of the
date hereof.
6.
This Amendment shall be governed by and construed and enforced in accordance with
the laws of the State of Hawaii, without reference to the conflict of laws provisions thereof.
(
Signature pages follow
)
IN WITNESS WHEREOF, the
parties hereto have duly executed this Amendment as of the date first above written.
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KOLU POHAKU TECHNOLOGIES, LLC
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By
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/s/ Thomas Adamek
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Thomas Adamek, President
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KOLU POHAKU MANAGEMENT, LLC
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By
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/s/ Thomas Adamek
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Thomas Adamek, President
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RITTER PHARMACEUTICALS, INC.
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By
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/s/ Andrew J. Ritter
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Andrew Ritter, President and CEO
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Exhibit 10.22
PUT AND CALL OPTION AGREEMENT
THIS PUT AND CALL OPTION
AGREEMENT dated as of November 30, 2010 (as modified, amended or restated from time-to-time, the “
Agreement
”)
is by and between KOLU POHAKU MANAGEMENT, LLC, a Delaware limited liability company, with its principal place of business and mailing
address at 236 Third Street, Baton Rouge, Louisiana 70801 (together with its successors and assigns, “
KPM
”),
KOLU POHAKU TECHNOLOGIES, LLC, a Delaware limited liability company, with its principal place of business and mailing address at
73-4460 Queen Kaahumanu Highway, #121, Kailua-Kona, Hawaii, 96740 (together with its successors and assigns, “
KPT
”);
and RITTER PHARMACEUTICALS, INC., a Delaware corporation, with its principal place of business and mailing address at 1880 Century
Park East, No. 1100, Los Angeles, California 90067 (together with its successors and assigns, “
Ritter
”). KPM,
KPT, and Ritter are referred to collectively as the “
Parties
” and individually as a “
Party
”
to this Agreement. In consideration of their mutual promises and with the intention to be legally bound, the Parties hereby agree
as follows:
1.
Put
and Call Options
.
1.1
Put
Option
. At any time after December 31, 2014 (the “
Exercise Date
”), Ritter shall have the option (the “
Put
Option
”) to issue to KPM a number of shares of Ritter’s Series B Preferred Stock equal to the quotient obtained
by dividing (X) by (Y) (the “
Put / Call Shares
”), where (X) is the amount of R&D Disbursements (as such
term is defined in that certain Research and Development Agreement and License, dated as of November 30, 2010 (the “
Research
Agreement
”), by and between KPT and Ritter), and (Y) is equal to the “
Series B Original Issue Price
”
(as defined in Ritter’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on November
15, 2010 (as the same may be amended, restated, or otherwise modified from time-to-time, the “
COI
”)) of one
share of Ritter’s Series B Preferred Stock.
1.2
Call
Option
. At any time after the Exercise Date, KPM shall have the option (the “
Call Option
” and collectively
with the Put Option, the “
Options
”) to require Ritter to issue to KPM the Put / Call Shares.
1.3
Automatic
Exercise
. Notwithstanding the foregoing, and irrespective of whether or not the Exercise Date has passed, the Options shall
be deemed mutually and automatically exercised by the Parties (any such exercise, an “
Automatic Exercise
”) concurrently
with any of the following events: (i) immediately prior to Ritter’s Qualified Public Offering (as defined in the COI), (ii)
immediately prior to any liquidation, dissolution or winding up of Ritter, either voluntary or involuntary, including, but not
limited to, a Deemed Liquidation Event (as defined in the COI), (iii) immediately prior to the license of Ritter’s RP-G28
technology, regardless of whether such license constitutes a Deemed Liquidation Event, or (iv) immediately prior to any redemption
or conversion of Ritter’s Series B Preferred Stock.
1.4
Material
Breach of the Research Agreement
. In the event of a Material Breach (as defined below) of the Research Agreement by Ritter,
the sole and exclusive remedy of KPM and KPT thereunder shall be either (i) exercise of the Call Option, irrespective of whether
or not the Exercise Date has passed, with respect to any R&D Disbursements or (ii)
institute an action for money
damages in an amount not to exceed the R&D Disbursements. It is the intention of the Parties hereto that the License granted
to Ritter under the Research Agreement shall be perpetual and irrevocable until such time as it is assigned to Ritter pursuant
to Section 4.17 below. For purposes of this Agreement, a “
Material Breach
” shall mean a material breach of the
Agreement that goes uncured more than fifteen (15) days after notice of such breach is provided to the breaching party.
2.
KPT
agrees that the issuance to KPM of the Put / Call Shares shall be in full satisfaction of Ritter’s obligation to make Royalty
Payments and other liabilities to KPT under the Research Agreement. The Put / Call Shares, when issued, will be duly authorized,
validly issued, fully paid and nonassessable. As promptly as reasonably practicable on or after the date that the Put Option or
Call Option, as the case may be, is exercised, or upon the occurrence of any Automatic Exercise or an election made under Section
1.4(i), and in any event within ten (10) days thereafter, Ritter shall issue and deliver to KPM a stock certificate for the Put
/ Call Shares and KPM agrees, as a condition of such issuance, to become a party to the Company’s Amended and Restated Investors’
Rights Agreement, dated as of November 17, 2010, as amended from time to time. Ritter agrees during the term the Options are exercisable
to take all reasonable action to reserve and keep available from its authorized and unissued shares of Series B Preferred Stock
for the purpose of effecting the exercise of the Options such number of shares (and shares of common stock for issuance on conversion
of such shares) as shall from time to time be sufficient to effect the exercise of the Options.
3.
Adjustments
.
The number and kind of shares issuable upon exercise of the Options are subject to adjustment from time to time, as follows:
3.1
Reclassification
of Shares
. If the securities issuable upon exercise of the Options are changed into the same or a different number of securities
of any other class or classes by reclassification, capital reorganization, conversion of all outstanding shares of the relevant
class or series or otherwise (other than as otherwise provided for herein) (a “
Reclassification
”), then, in
any such event, the Options shall be exercisable for a number of shares of such other class or classes of stock that a holder of
the number of securities deliverable upon exercise of the Options immediately before that change would have been entitled to receive
in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.
3.2
Subdivisions
and Combinations
. In the event that the outstanding shares of Series B Preferred Stock are subdivided (by stock split, by payment
of a stock dividend or otherwise) into a greater number of shares of such securities, the number of shares issuable upon exercise
of the Options immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately
increased, and in the event that the outstanding shares of Series B Preferred Stock are combined (by reclassification or otherwise)
into a lesser number of shares of such securities, the number of shares issuable upon exercise of the Options immediately prior
to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased.
3.3
Redemption
.
In the event that all of the outstanding shares of the securities issuable upon exercise of the Options are redeemed in accordance
with the COI, the
Options shall thereafter
be exercisable for a number of shares of Ritter common stock equal to the number of shares of common stock that would have been
received if the Options had been exercised in full immediately prior to such redemption and the preferred stock received thereupon
had been simultaneously converted into common stock.
3.4
Notice
of Adjustments
. Upon any adjustment in accordance with this Section 3, Ritter shall give notice thereof to KPM, which notice
shall state the event giving rise to the adjustment and the number of securities or other property issuable upon the exercise of
the Options, setting forth in reasonable detail the method of calculation. Ritter shall, upon the written request of KPM, furnish
or cause to be furnished to KPM a certificate setting forth such adjustments and the number of securities and the amount, if any,
of other property that at the time would be received upon exercise of the Options.
4.
Miscellaneous
.
4.1
Notices
.
Notices required under this Agreement shall be in writing and shall be sent to by overnight courier, hand delivery, mail, telecopier
or other reliable electronic means to the intended recipient of such notice at the address previously provided by such person.
Any such notice so sent shall be deemed to have been given (i) upon delivery if given by overnight couriers or hand delivery, (ii)
three business days after depositing the notice in the U.S. mails, or (iii) upon confirmation if given by telecopier or other reliable
electronic means.
4.2
Application
of Hawaii Law; Venue
. This Agreement shall be construed and enforced in accordance with the laws of the State of Hawaii. Any
dispute between the parties arising out of or in connection with this Agreement will be resolved exclusively by the State and Federal
courts located in the State of Hawaii and having appropriate jurisdiction over the Parties.
4.3
Litigation
Expenses
. If a Party resorts to litigation to remedy a breach of this Agreement by the other Party, then the prevailing Party
in the litigation, in addition to any other remedies available to said Party under this Agreement or by law, may collect its attorneys’
fees and other costs and expenses of such litigation.
4.4
Amendments
.
This Agreement may not be amended except by the written agreement of all Parties.
4.5
Headings
.
The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or
limit the scope, extent, or intent of this Agreement or any provision hereof.
4.6
Severability
.
If any provision of this Agreement or the application thereof to any Party or circumstance shall be invalid, illegal, or unenforceable
to any extent, the remainder of this Agreement and the application thereof shall not be affected and shall be enforceable to the
fullest extent permitted by law.
4.7
Counterparts
.
This Agreement may be executed in one or more counterparts each of which shall for all purposes be deemed an original and all of
such counterparts, taken together, shall constitute one and the same Agreement.
4.8
Gender
.
Words used herein, regardless of the number or gender specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
4.9
Successors,
and Assigns
. Each and all of the covenants, terms, provisions, and agreements herein contained shall be binding upon and inure
to the benefit of the parties hereto and, to the extent permitted by this Agreement and by applicable law, their respective successors
and assigns.
4.10
Creditors
and Other Third Parties
. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors
of a Party or by other third parties.
4.11
Contract
Terms to be Exclusive
. This written Agreement, along with the Research and Development Agreement and License, dated as of the
date hereof, to which each of the Parties hereto is a party and which this Agreement is intended to supplement, contain the sole
and entire agreement between the Parties with respect to its subject matter, and supersede any and all other agreements between
them with respect to its subject matter.
4.12
No
Party Deemed Drafter
. The Parties agree that no Party shall be deemed to be the drafter of this Agreement and further that
in the event that this Agreement is ever construed by a court of law, such court shall not construe this Agreement or any provision
of this Agreement against any Party as the drafter of the Agreement.
4.13
Assignment
.
No assignment of this Agreement or the rights and obligations hereunder shall be valid without the specific written consent of
both Parties hereto.
4.14
Remedies
in Equity
. The rights and remedies of any Party hereunder shall not be mutually exclusive, and the exercise of one or more
of the provisions hereof shall not preclude the exercise of any other provisions hereof. Each Party confirms that damages at law
may be an inadequate remedy for a breach or threatened breach of this Agreement and agrees that, in the event of a breach or threatened
breach of any provision hereof, the respective rights and obligations hereunder shall be enforceable by specific performance, injunction
or equitable remedy, but nothing herein contained is intended to, nor shall it, limit or affect any rights at law or by statute
or otherwise of any Party aggrieved as against the other for a breach or threatened breach of any provisions hereof, it being the
intention by this Section to make clear the agreement of the parties that the respective rights and obligations of the parties
hereunder shall be enforceable in equity as well as at law or otherwise.
4.15
Authority
to Enter into Agreement
. By execution of this Agreement below, each Party represents and covenants that it has all necessary
legal right, power, and authority to enter into and perform this Agreement. The execution and delivery by each Party of this Agreement
and the performance by the Party of its obligations hereunder have been duly authorized and approved by all requisite corporate
action or otherwise. This Agreement has been executed and delivered by a duly authorized officer or representative of the Party,
and constitutes a valid and legally binding obligation of the Party, enforceable against the Party in accordance with its terms
(except to the extent that enforcement may be affected by laws relating to
bankruptcy, reorganization,
insolvency and creditors’ rights and by the availability of injunctive relief, specific performance, and other equitable
remedies). Neither the execution and delivery of this Agreement by the Party, nor the consummation by the Party of the transaction
contemplated hereby, will conflict with or result in a breach of any of the terms, conditions or provisions of the Party’s
governing documents or of any statute or administrative regulation, or of any order, writ, injunction, judgment, or decree of any
court or governmental authority or of any arbitration award to which the Party is a party or by which the Party is bound.
4.16
Board
Seat
. The Parties hereto acknowledge and agree that KPM shall have the right to designate a member of Ritter’s Board
of Directors upon R&D Disbursements to Ritter equaling at least $750,000. At such time as R&D Disbursements equal at least
$750,000, Ritter covenants to take such steps as may be necessary in order to provide for KPM’s board rights hereunder in
Ritter’s governing instruments. Notwithstanding the foregoing, if KPT has the right to designate a member of Ritter’s
Board of Directors at the time KPT and/or KPM elects the remedy set forth in Section 1.4(ii) hereof, such right shall immediately
terminate and KPM shall, in its place, be granted the right to appoint one (1) board observer subject to the terms of a standard
board observer confidentiality agreement.
4.17
Transfer
of Rights Upon Certain Events
. Upon either (a) exercise of either the Put Option or Call Option, (b) the occurrence of any
Automatic Exercise, (c) exercise by KPM and/or KPT of one of the remedies set forth in Section 1.4 hereof, or (d) any failure by
KPT to disburse the 2011 R&D Fee Installment as requested by Ritter, whether or not such failure constitutes a breach of the
Research Agreement by any Party thereto, but only after the Parties have a made a good faith effort to resolve any dispute concerning
such disbursement request, the Parties hereto agree that the Research Agreement shall terminate (if it has not already done so),
all of KPT’s right, title and interest in the research conducted hereunder shall immediately become the property of Ritter,
and KPT and KPM hereby assign, and shall take all steps as may reasonably be required in order to perfect the assignment of such
right, title and interest to Ritter including, without limitation, the execution of a standard form of assignment and any applicable
state or federal filings that may be required of the Parties in connection with their performance under this section.
4.18
Survival
.
The Parties’ obligations under Sections 1.4, 2 and 4 shall survive termination of this Agreement for any reason.
[Signature page to follow]
[Put and Call Option Agreement Signature Page]
IN WITNESS WHEREOF, the
parties have caused this Agreement to be executed in duplicate by their duly authorized representatives.
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KOLU POHAKU MANAGEMENT, LLC
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By
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/s/ Thomas Adamek
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Its
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President
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KOLU POHAKU TECHNOLOGIES, LLC
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By
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/s/ Thomas Adamek
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Its
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President
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew Ritter
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Its
|
Exhibit 10.23
THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE SALE OF THE SECURITIES
THAT IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION
IS UNLAWFUL UNLESS THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS
THE SALE IS SO EXEMPT.
RITTER PHARMACEUTICALS,
INC.
SUBORDINATED CONVERTIBLE
PROMISSORY NOTE
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$25,000.00
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May 23, 2014
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Los Angeles, California
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FOR VALUE RECEIVED,
RITTER
PHARMACEUTICALS, INC.
, a Delaware corporation (the “
Company
”), promises to pay to SJ Investment Company,
LLC (“
Holder
”), or its registered assigns, in lawful money of the United States of America the principal sum
of Twenty Five Thousand Dollars and No Cents ($25,000.00), or so much thereof as may be advanced under this Subordinated Convertible
Promissory Note (this “
Note
”), together with simple interest thereon at the annual rate of
eight percent
(8.00%)
per annum (the “
Interest Rate
”), computed on the basis of the actual number of days elapsed and
a year of 365 days.
This Note is one of the
subordinated convertible promissory notes (all such notes, including this Note, collectively, the “
Notes
”) issued
pursuant to the Company’s 2014(A) Note Purchase Agreement (as amended, modified or supplemented, the “
Note Purchase
Agreement
”), between the Company, Holder and the other Persons party thereto (collectively, including Holder, the “
Holders
”). The
terms and provisions of the Note Purchase Agreement are incorporated herein by this reference. This Note is a single
advance note.
The following is a statement
of the rights of Holder and the conditions to which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1.
Definitions
. Capitalized
terms not otherwise defined herein shall have the following meanings:
(a)
“
Affiliate
”
shall mean any Person under the control of, controlled by or under common control with another Person.
(b)
“
Common
Stock
” shall mean shares of the Company’s Common Stock, par value $0.001 per share.
(c)
“
Company
”
includes the entity initially executing this Note and any Person which shall succeed to or assume the obligations of the Company
under this Note.
(d)
“
Business
Day
” shall means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized
or required to close.
(e)
“
Charter
”
shall mean the Company’s Amended and Restated Certificate of Incorporation, as in effect on the date hereof and as amended
from time to time.
(f)
“
Conversion
Event
” shall mean any of conversion of this Note pursuant to
Section 6
below.
(g)
“
Derivative
Securities
” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly
or indirectly), Common Stock, including options, warrants and preferred stock.
(h)
“
Event
of Default
” shall have the meaning set forth in
Section 4
below.
(i)
“
Fully
Diluted Outstanding Capital
” shall mean the total number of shares of Common Stock outstanding assuming the conversion,
exchange and/or exercise of all outstanding Derivative Securities other than the Notes.
(j)
“
Lien
”
shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in,
of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional
sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing
of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.
(k)
“
Majority
in Interest
” shall mean Holders holding more than fifty percent (50%) of the aggregate outstanding principal amount of
the Notes issued pursuant to the Note Purchase Agreement.
(l)
“
Material
Adverse Effect
” shall mean a material adverse effect on (a) the Company’s financial condition or business as now
conducted or proposed to be conducted; (b) the ability of the Company to pay or perform the Obligations in accordance with the
terms of this Note and the Note Purchase Agreement and to avoid an Event of Default, or an event which, with the giving of notice
or the passage of time or both, would constitute an Event of Default; or (c) the rights and remedies of Holder under this Note
and the Note Purchase Agreement.
(m)
“
Maturity
Date
” shall mean
twelve (12)
months from date this Note is issued.
(n)
“
Obligations
”
shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Holder
of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money),
now existing or hereafter arising under or pursuant to the terms of this Note and the Note Purchase Agreement, including, all interest,
fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the
Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether
or not arising after the commencement of a proceeding under Title 11 of the United
States Code (11 U. S. C.
Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as
a claim in any such proceeding.
(o)
“
Person
”
shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other entity or a governmental authority.
(p)
“
Preferred
Director
” means any member of the Board of Directors subject to election exclusively by the holders of one or more series
of the Company’s Preferred Stock in accordance with the Company’s certificate of incorporation, as in effect from time
to time.
(q)
“
Qualified
Equity Financing
” shall mean an equity financing pursuant to which the Company sells, with the principal purpose of raising
capital, a new class of preferred stock (the “Preferred Securities”) with an aggregate sales price of not less than
$3,000,000, including the principal and accrued but unpaid interest of any Notes which are converted into such Preferred Securities.
(r)
“
Sale
Event
” shall mean (i) any “person” or “group” (within the meaning of Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the outstanding voting securities
of the Company having the right to vote for the election of members of the Board of Directors, (ii) any reorganization, merger
or consolidation of the Company, other than a transaction or series of related transactions in which the holders of the voting
securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately
after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding
voting securities of the Company or such other surviving or resulting entity or (iii) a sale, lease or other disposition of all
or substantially all of the assets of the Company. Notwithstanding the forgoing, a Sale Event shall not be deemed to
have occurred upon a transfer of the Company’s capital stock, without consideration, between a stockholder of Company and
an affiliate, member or limited partner of such stockholder, a sale of Company’s equity securities in a public offering,
or a sale of Company’s equity securities to one or more venture capital investors with the primary purpose of raising capital.
(s)
“
Securities
Act
” shall mean the Securities Act of 1933, as amended.
(t)
“
Senior
Indebtedness
” shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note,
the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other
amounts due in connection with, (i) indebtedness of Company, to banks, commercial finance lenders, other lending institutions regularly
engaged in the business of lending money, or any other lenders (excluding (A) venture capital, investment banking or similar institutions
which sometimes engage in lending activities but which are primarily engaged in investments in equity securities and (B) equipment
lenders or equipment lessors that advance indebtedness to Company solely to be used for the purchase, finance or acquisition of
equipment and where such indebtedness is secured solely by such equipment), which is for money borrowed whether or not secured,
and (ii) any such indebtedness or any debentures, notes or other evidence of
indebtedness issued in exchange
for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor.
2.
Payment
. All
outstanding principal, together with any then unpaid and accrued interest and any other amounts payable hereunder, shall be due
and payable upon the earlier of (i) ten days written notice to the Company by the Holder following the Maturity Date, or (ii) when,
upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Holder in
accordance with Section 5 below. In the event that the Maturity Date falls on a date other than a Business Day, the
payment due on such date shall be made on the next Business Day. For purposes of clarity, this Note may not be repaid
in the absence of a demand for such repayment by the Holder hereof other than in connection with a Sale Event, as set forth below.
3.
Prepayment
. This
Note may not be prepaid without the prior written consent of the Holder.
4.
Events
of Default
. The occurrence of any of the following shall constitute an “Event of Default” under
this Note and the Note Purchase Agreement:
(a)
Failure
to Pay
. The Company shall fail to make any principal or interest payment or any other payment required under
the terms of this Note within two (2) Business Days of the date such payment is due; or
(b)
Voluntary
Bankruptcy or Insolvency Proceedings
. The Company shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit
in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or
any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case
or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing; or
(c)
Involuntary
Bankruptcy or Insolvency Proceedings
. Proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency
or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within 30 days of commencement.
5.
Rights
of Holder upon Default
. Upon the occurrence or existence of an Event of Default described in Section 4(a)
and at any time thereafter during the continuance of such Event of Default, Holder may, with the consent of a Majority in Interest,
by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby
expressly waived. Upon the occurrence or existence of an Event of Default described in
Sections 4(b)
or
4(c)
,
all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the
Note Purchase Agreement to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence
or existence of any Event of Default and, in the case of an Event of Default described in
Section 4(a)
, subject to the consent
of a Majority in Interest, Holder may exercise any other right, power or remedy granted to it by this Note and the Note Purchase
Agreement or otherwise permitted to it by law, either by suit in equity or by action at law, or both. Notwithstanding
the foregoing, if, on the date that is six (6) months from an Event of Default described in
Section 4(a)
, and provided such
Event of Default is continuing at such time, a Majority in Interest has not exercised any or all of its rights hereunder, Holder
may seek to exercise any or all rights it may have at such time without seeking the consent of a Majority in Interest.
6.
Qualified
Equity Financing; Sale Event
.
(a)
Conversion
Upon Qualified Equity Financing
. Upon consummation of a Qualified Equity Financing during the term this
Note remains outstanding, the outstanding principal amount of and all accrued but unpaid interest under this Note shall automatically
convert into shares of Preferred Stock (“
Preferred Securities
”) at a price per share equal to seventy-five percent
(75%) of the price per share paid by the investors (other than the Holders) participating in the Qualified Equity Financing and
otherwise on the same terms as the Qualified Equity Financing.
(b)
Repayment
Upon Sale Event
. Upon the consummation of a Sale Event during the term this Note remains outstanding, the
outstanding principal amount of and all accrued but unpaid interest under this Note shall become immediately due and payable along
with an additional payment equal to one hundred percent (100%) of the original principal amount advanced hereunder.
(c)
Delivery
. Upon
conversion of this Note pursuant to a Conversion Event, the Holder hereby agrees to execute and deliver to the Company all transaction
documents related to the Conversion Event including, if applicable, customary representations and warranties and transfer restrictions,
and having the same terms as those agreements entered into by the Company’s other holders of Preferred Securities or Common
Stock, as applicable. Upon conversion of this Note pursuant to a Conversion Event, the Holder also agrees to deliver
the original of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement
acceptable to the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this
Note) for cancellation;
provided
,
however
,
that
upon consummation of the Conversion Event
this Note shall be deemed converted and of no further force and effect, whether or not it is delivered for cancellation as set
forth in this sentence.
(d)
Fractional
Shares; Interest; Effect of Conversion
. No fractional shares shall be issued upon conversion of this Note. In
lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder an
amount equal to
the product obtained by multiplying
the conversion price by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this
Note in full and the payment of any amounts specified in this
Section 6(d)
, the Company shall be forever released from all
its obligations and liabilities under this Note.
7.
Additional
Debt
. The Company shall not incur any Senior Indebtedness or any additional indebtedness not contemplated
by the Note Purchase Agreement without the prior approval of the holders of a Majority in Interest.
8.
Successors
and Assigns
. Subject to any restrictions on transfer described below, the rights and obligations of the
Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
9.
Waiver
and Amendment
. Any provision of this Note may be amended, waived or modified upon the written consent of
the Company and a Majority in Interest;
provided
,
however
,
that
no such amendment, waiver
or consent shall: (i) reduce the principal amount of this Note without Holder’s written consent, or (ii) reduce the applicable
Interest Rate of this Note without Holder’s written consent.
10.
Transfer
of this Note
. Holder may not sell or otherwise dispose of this Note without the prior approval of the Company,
in its sole discretion. With respect to any proposed offer, sale or other disposition of this Note, Holder will give
written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of Holder’s
counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution
may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving
such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable,
shall in its sole discretion determine whether Holder may sell or otherwise dispose of this Note, all in accordance with the terms
of the notice delivered to the Company. The Company shall so notify Holder promptly after such determination has been
made. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion
of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company
may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing,
transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior
to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and
holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever,
whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.
11.
Assignment
by the Company
. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned,
by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest. Notwithstanding
the foregoing, the Company may, with the consent of its Board of Directors (which consent includes the consent of each and every
then-serving Preferred Director), assign this Note to a new corporation (the “
Newco
”) formed for the purpose
of developing and commercializing RP-G28,
the Company’s primary
drug candidate for the treatment of lactose intolerance and related purposes, in connection with the split off of that part of
its business from the Company (the “
Split Off Assignment
”). In the event of any Split Off Assignment,
this Note shall become the obligation of Newco and references to the Company herein shall be deemed references to Newco.
12.
Notices
. All
notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and
faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Note Purchase Agreement,
or at such other address or facsimile number as the Company shall have furnished to Holder in writing. All such notices
and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one
business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited
with an overnight courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with
postage prepaid.
13.
Pari
Passu Notes
. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal
amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes
issued pursuant to the Note Purchase Agreement. In the event Holder receives payments in excess of its pro rata share
of the Company’s payments to all Holders, then Holder shall hold in trust all such excess payments for the benefit of the
other Holders and shall pay such amounts held in trust to such other Holders upon demand by such other Holders.
14.
Subordination
. The
indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of all of the Company’s Senior Indebtedness.
(a)
Insolvency
Proceedings
. If there shall occur any receivership, insolvency, assignment for the benefit of creditors,
bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale
of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of the
Company, (i) no amount shall be paid by the Company in respect of the principal of, interest on or other amounts due with respect
to this Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding
shall be paid in full, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of Holder which shall
assert any right to receive any payments in respect of the principal of and interest on this Note except subject to the payment
in full of the principal of and interest on all of the Senior Indebtedness then outstanding.
(b)
Default
on Senior Indebtedness
. If there shall occur an event of default which has been declared in writing with
respect to any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder
to accelerate the maturity thereof and Holder shall have received written notice thereof from the holder of such Senior Indebtedness,
then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness
shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note, unless within one
hundred
eighty (180) days after the
happening of such event of default, the maturity of such Senior Indebtedness shall not have been accelerated. Not more
than one notice may be given to Holder pursuant to the terms of this Section 14(b) during any 360 day period.
(c)
Further
Assurances
. By acceptance of this Note, Holder agrees to execute and deliver customary forms of subordination
agreement requested from time to time by holders of Senior Indebtedness, and as a condition to Holder’s rights hereunder,
the Company may require that Holder execute such forms of subordination agreement;
provided
,
however
,
that
such forms shall not impose on Holder terms less favorable than those provided herein.
(d)
Other
Indebtedness
. No indebtedness which does not constitute Senior Indebtedness shall be senior in any respect
to the indebtedness represented by this Note.
(e)
Subrogation
. Subject
to the payment in full of all Senior Indebtedness, Holder shall be subrogated to the rights of the holder(s) of such Senior Indebtedness
(to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the provisions of
this
Section 14
) to receive payments and distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other than
the holders of Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which Holder would be entitled
except for the provisions of this
Section 14
shall, as between the Company and its creditors, other than the holders of
Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness.
(f)
No
Impairment
. Subject to the rights, if any, of the holders of Senior Indebtedness under this
Section 14
to receive cash, securities or other properties otherwise payable or deliverable to Holder, nothing contained in this
Section
14
shall impair, as between the Company and Holder, the obligation of the Company, subject to the terms and conditions hereof,
to pay to Holder the principal hereof and interest hereon as and when the same become due and payable, or shall prevent Holder,
upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law.
(g)
Lien
Subordination
. Any Lien of Holder, whether now or hereafter existing in connection with the amounts due
under this Note, on any assets or property of the Company or any proceeds or revenues therefrom which Holder may have at any time
as security for any amounts due and obligations under this Note shall be subordinate to all Liens now or hereafter granted to a
holder of Senior Indebtedness by the Company or by law, notwithstanding the date, order or method of attachment or perfection of
any such Lien or the provisions of any applicable law.
(h)
Reliance
of Holders of Senior Indebtedness
. Holder, by its acceptance hereof, shall be deemed to acknowledge and
agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder
of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the indebtedness
evidenced by this Note, and each such holder of Senior Indebtedness shall be
deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness.
15.
Usury
. In
the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of
the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note. The Company agrees that the interest rate contracted for in connection with
the credit accommodations evidenced by this Note and the Note Purchase Agreement includes the interest rate set forth herein and
any other charges, costs, fees and expenses incident to this transaction paid by or on behalf of the Company, or any benefit received
by or on behalf of any Holder, to the extent the same are deemed interest under applicable law.
16.
Waivers
. The
Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all
other notices or demands relative to this instrument.
17.
Governing
Law and Jurisdiction
. This Note and all actions arising out of or in connection with this Agreement shall
be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law provisions
of the State of Delaware or of any other state. This Note and all actions arising out of or in connection with this
Note shall be subject to the exclusive jurisdiction of the state and federal courts located in Los Angeles, California, and each
Holder expressly consents to such jurisdiction and waives any objection to such jurisdiction based on
forum non-conveniens
or any similar theory.
(
Signature Page Follows
)
The Company has caused
this Note to be issued as of the date first written above.
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew J. Ritter
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ANDREW J. RITTER
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President and Chief Executive Officer
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SUBORDINATED CONVERTIBLE
PROMISSORY NOTE
Exhibit 10.24
THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
THE SALE OF THE SECURITIES
THAT IS THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION
IS UNLAWFUL UNLESS THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS
THE SALE IS SO EXEMPT.
RITTER PHARMACEUTICALS,
INC.
SUBORDINATED CONVERTIBLE
PROMISSORY NOTE
Los Angeles, California
FOR VALUE RECEIVED,
RITTER
PHARMACEUTICALS, INC.
, a Delaware corporation (the “
Company
”), promises to pay to Javelin Venture Partners,
L.P. (“
Holder
”), or its registered assigns, in lawful money of the United States of America the principal sum
of Three Hundred Fifty Thousand Dollars and No Cents ($350,000.00), or so much thereof as may be advanced under this Subordinated
Convertible Promissory Note (this “
Note
”), together with simple interest thereon at the annual rate of
eight
percent (8.00%)
per annum (the “
Interest Rate
”), computed on the basis of the actual number of days elapsed
and a year of 365 days.
This Note is one of the
subordinated convertible promissory notes (all such notes, including this Note, collectively, the “
Notes
”) issued
pursuant to the Company’s 2014(A) Note Purchase Agreement (as amended, modified or supplemented, the “
Note Purchase
Agreement
”), between the Company, Holder and the other Persons party thereto (collectively, including Holder, the “
Holders
”). The
terms and provisions of the Note Purchase Agreement are incorporated herein by this reference. This Note is a single
advance note.
The following is a statement
of the rights of Holder and the conditions to which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1.
Definitions
. Capitalized
terms not otherwise defined herein shall have the following meanings:
(a)
“
Affiliate
” shall mean any Person under
the control of, controlled by or under common control with another Person.
(b)
“
Common Stock
” shall mean shares of the
Company’s Common Stock, par value $0.001 per share.
(c)
“
Company
” includes the entity initially executing this Note
and any Person which shall succeed to or assume the obligations of the Company under this Note.
(d)
“
Business Day
” shall means any day that
is not a Saturday, Sunday, or other day on which banks in the State of California are authorized or required to close.
(e)
“
Charter
” shall mean the Company’s
Amended and Restated Certificate of Incorporation, as in effect on the date hereof and as amended from time to time.
(f)
“
Conversion Event
” shall mean any of conversion
of this Note pursuant to
Section 6
below.
(g)
“
Derivative Securities
” means any securities
or rights convertible into, or exercisable or exchangeable for (in each case, directly or indirectly), Common Stock, including
options, warrants and preferred stock.
(h)
“
Event of Default
” shall have the meaning
set forth in
Section 4
below.
(i)
“
Fully
Diluted Outstanding Capital
” shall mean the total number of shares of Common Stock outstanding assuming the conversion,
exchange and/or exercise of all outstanding Derivative Securities other than the Notes.
(j)
“
Lien
” shall mean, with respect to any property,
any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or on such property or the income therefrom,
including, without limitation, the interest of a vendor or lessor under a conditional sale agreement, capital lease or other title
retention agreement, or any agreement to provide any of the foregoing, and the filing of any financing statement or similar instrument
under the Uniform Commercial Code or comparable law of any jurisdiction.
(k)
“
Majority in Interest
” shall mean Holders
holding more than fifty percent (50%) of the aggregate outstanding principal amount of the Notes issued pursuant to the Note Purchase
Agreement.
(l)
“
Material Adverse Effect
” shall mean a material
adverse effect on (a) the Company’s financial condition or business as now conducted or proposed to be conducted; (b) the
ability of the Company to pay or perform the Obligations in accordance with the terms of this Note and the Note Purchase Agreement
and to avoid an Event of Default, or an event which, with the giving of notice or the passage of time or both, would constitute
an Event of Default; or (c) the rights and remedies of Holder under this Note and the Note Purchase Agreement.
(m)
“
Maturity Date
” shall mean
twelve
(12)
months from date this Note is issued.
(n)
“
Obligations
” shall mean and include all
loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Holder of every kind and description
(whether or not evidenced by any note or instrument and whether or not for the payment of money), now existing or hereafter arising
under or pursuant to the terms of this Note and the Note Purchase Agreement, including, all interest, fees, charges, expenses,
attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the Company hereunder and thereunder,
in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement
of a proceeding under Title 11 of the United
States Code (11 U. S. C.
Section 101 et seq.), as amended from time to time (including post-petition interest) and whether or not allowed or allowable as
a claim in any such proceeding.
(o)
“
Person
” shall mean and include an individual,
a partnership, a corporation (including a business trust), a joint stock company, a limited liability company, an unincorporated
association, a joint venture or other entity or a governmental authority.
(p)
“
Preferred Director
” means any member of
the Board of Directors subject to election exclusively by the holders of one or more series of the Company’s Preferred Stock
in accordance with the Company’s certificate of incorporation, as in effect from time to time.
(q)
“
Qualified Equity Financing
” shall mean
an equity financing pursuant to which the Company sells, with the principal purpose of raising capital, a new class of preferred
stock (the “Preferred Securities”) with an aggregate sales price of not less than $3,000,000, including the principal
and accrued but unpaid interest of any Notes which are converted into such Preferred Securities.
(r)
“
Sale Event
” shall mean (i) any “person”
or “group” (within the meaning of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), becomes
the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of more than 50% of the outstanding voting securities of the Company having the right to vote for the election of members
of the Board of Directors, (ii) any reorganization, merger or consolidation of the Company, other than a transaction or series
of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction
or series of related transactions retain, immediately after such transaction or series of related transactions, at least a majority
of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting
entity or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company. Notwithstanding
the forgoing, a Sale Event shall not be deemed to have occurred upon a transfer of the Company’s capital stock, without consideration,
between a stockholder of Company and an affiliate, member or limited partner of such stockholder, a sale of Company’s equity
securities in a public offering, or a sale of Company’s equity securities to one or more venture capital investors with the
primary purpose of raising capital.
(s)
“
Securities Act
” shall mean the Securities
Act of 1933, as amended.
(t)
“
Senior Indebtedness
” shall mean, unless
expressly subordinated to or made on a parity with the amounts due under this Note, the principal of (and premium, if any), unpaid
interest on and amounts reimbursable, fees, expenses, costs of enforcement and other amounts due in connection with, (i) indebtedness
of Company, to banks, commercial finance lenders, other lending institutions regularly engaged in the business of lending money,
or any other lenders (excluding (A) venture capital, investment banking or similar institutions which sometimes engage in lending
activities but which are primarily engaged in investments in equity securities and (B) equipment lenders or equipment lessors that
advance indebtedness to Company solely to be used for the purchase, finance or acquisition of equipment and where such indebtedness
is secured solely by such equipment), which is for money borrowed whether or not secured, and (ii) any such indebtedness or any
debentures, notes or other evidence of
indebtedness issued in exchange
for such Senior Indebtedness, or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor.
2.
Payment
. All
outstanding principal, together with any then unpaid and accrued interest and any other amounts payable hereunder, shall be due
and payable upon the earlier of (i) ten days written notice to the Company by the Holder following the Maturity Date, or (ii) when,
upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Holder in
accordance with Section 5 below. In the event that the Maturity Date falls on a date other than a Business Day, the
payment due on such date shall be made on the next Business Day. For purposes of clarity, this Note may not be repaid
in the absence of a demand for such repayment by the Holder hereof other than in connection with a Sale Event, as set forth below.
3.
Prepayment
. This
Note may not be prepaid without the prior written consent of the Holder.
4.
Events
of Default
. The occurrence of any of the following shall constitute an “
Event of Default
”
under this Note and the Note Purchase Agreement:
(a)
Failure to Pay
. The Company
shall fail to make any principal or interest payment or any other payment required under the terms of this Note within two (2)
Business Days of the date such payment is due; or
(b)
Voluntary Bankruptcy or Insolvency Proceedings
. The
Company shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or
a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature,
(iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, (v) commence a
voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment
of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it, or (vi)
take any action for the purpose of effecting any of the foregoing; or
(c)
Involuntary Bankruptcy or Insolvency Proceedings
. Proceedings
for the appointment of a receiver, trustee, liquidator or custodian of the Company or of all or a substantial part of the property
thereof, or an involuntary case or other proceedings seeking liquidation, reorganization or other relief with respect to the Company
or the debts thereof under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an
order for relief entered or such proceeding shall not be dismissed or discharged within 30 days of commencement.
5.
Rights
of Holder upon Default
. Upon the occurrence or existence of an Event of Default described in
Section
4(a)
and at any time thereafter during the continuance of such Event of Default, Holder may, with the consent of a Majority
in Interest, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately
due and payable without presentment, demand, protest or any other notice of any
kind, all of which are hereby
expressly waived. Upon the occurrence or existence of an Event of Default described in
Sections 4(b)
or
4(c)
,
all outstanding Obligations payable by the Company hereunder shall automatically become immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the
Note Purchase Agreement to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence
or existence of any Event of Default and, in the case of an Event of Default described in
Section 4(a)
, subject to the consent
of a Majority in Interest, Holder may exercise any other right, power or remedy granted to it by this Note and the Note Purchase
Agreement or otherwise permitted to it by law, either by suit in equity or by action at law, or both. Notwithstanding
the foregoing, if, on the date that is six (6) months from an Event of Default described in
Section 4(a)
, and provided such
Event of Default is continuing at such time, a Majority in Interest has not exercised any or all of its rights hereunder, Holder
may seek to exercise any or all rights it may have at such time without seeking the consent of a Majority in Interest.
6.
Qualified
Equity Financing; Sale Event
.
(a)
Conversion Upon Qualified Equity Financing
. Upon
consummation of a Qualified Equity Financing during the term this Note remains outstanding, the outstanding principal amount of
and all accrued but unpaid interest under this Note shall automatically convert into shares of Preferred Stock (“
Preferred
Securities
”) at a price per share equal to seventy-five percent (75%) of the price per share paid by the investors (other
than the Holders) participating in the Qualified Equity Financing and otherwise on the same terms as the Qualified Equity Financing.
(b)
Repayment Upon Sale Event
. Upon
the consummation of a Sale Event during the term this Note remains outstanding, the outstanding principal amount of and all accrued
but unpaid interest under this Note shall become immediately due and payable along with an additional payment equal to one hundred
percent (100%) of the original principal amount advanced hereunder.
(c)
Delivery
. Upon conversion of
this Note pursuant to a Conversion Event, the Holder hereby agrees to execute and deliver to the Company all transaction documents
related to the Conversion Event including, if applicable, customary representations and warranties and transfer restrictions, and
having the same terms as those agreements entered into by the Company’s other holders of Preferred Securities or Common Stock,
as applicable. Upon conversion of this Note pursuant to a Conversion Event, the Holder also agrees to deliver the original
of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to
the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this Note) for cancellation;
provided
,
however
,
that
upon consummation of the Conversion Event this Note shall be
deemed converted and of no further force and effect, whether or not it is delivered for cancellation as set forth in this sentence.
(d)
Fractional Shares; Interest; Effect of Conversion
. No
fractional shares shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares
to Holder upon the conversion of this Note, the Company shall pay to Holder an amount equal to
the product obtained by multiplying
the conversion price by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this
Note in full and the payment of any amounts specified in this
Section 6(d)
, the Company shall be forever released from all
its obligations and liabilities under this Note.
7.
Additional
Debt
. The Company shall not incur any Senior Indebtedness or any additional indebtedness not contemplated
by the Note Purchase Agreement without the prior approval of the holders of a Majority in Interest.
8.
Successors
and Assigns
. Subject to any restrictions on transfer described below, the rights and obligations of the
Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
9.
Waiver
and Amendment
. Any provision of this Note may be amended, waived or modified upon the written consent of
the Company and a Majority in Interest;
provided
,
however
,
that
no such amendment, waiver
or consent shall: (i) reduce the principal amount of this Note without Holder’s written consent, or (ii) reduce the applicable
Interest Rate of this Note without Holder’s written consent.
10.
Transfer
of this Note
. Holder may not sell or otherwise dispose of this Note without the prior approval of the Company,
in its sole discretion. With respect to any proposed offer, sale or other disposition of this Note, Holder will give
written notice to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of Holder’s
counsel, or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution
may be effected without registration or qualification (under any federal or state law then in effect). Upon receiving
such written notice and reasonably satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable,
shall in its sole discretion determine whether Holder may sell or otherwise dispose of this Note, all in accordance with the terms
of the notice delivered to the Company. The Company shall so notify Holder promptly after such determination has been
made. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion
of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company
may issue stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing,
transfers of this Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior
to presentation of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and
holder of this Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever,
whether or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.
11.
Assignment
by the Company
. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned,
by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest. Notwithstanding
the foregoing, the Company may, with the consent of its Board of Directors (which consent includes the consent of each and every
then-serving Preferred Director), assign this Note to a new corporation (the “
Newco
”) formed for the purpose
of developing and commercializing RP-G28,
the Company’s primary
drug candidate for the treatment of lactose intolerance and related purposes, in connection with the split off of that part of
its business from the Company (the “
Split Off Assignment
”). In the event of any Split Off Assignment,
this Note shall become the obligation of Newco and references to the Company herein shall be deemed references to Newco.
12.
Notices
. All
notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and
faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Note Purchase Agreement,
or at such other address or facsimile number as the Company shall have furnished to Holder in writing. All such notices
and communications will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one
business day after being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited
with an overnight courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with
postage prepaid.
13.
Pari
Passu Notes
. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal
amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes
issued pursuant to the Note Purchase Agreement. In the event Holder receives payments in excess of its pro rata share
of the Company’s payments to all Holders, then Holder shall hold in trust all such excess payments for the benefit of the
other Holders and shall pay such amounts held in trust to such other Holders upon demand by such other Holders.
14.
Subordination
. The
indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in
right of payment to the prior payment in full of all of the Company’s Senior Indebtedness.
(a)
Insolvency Proceedings
. If there
shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy, reorganization, or arrangements
with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or substantially all of the assets,
dissolution, liquidation, or any other marshaling of the assets and liabilities of the Company, (i) no amount shall be paid by
the Company in respect of the principal of, interest on or other amounts due with respect to this Note at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim
or proof of claim shall be filed with the Company by or on behalf of Holder which shall assert any right to receive any payments
in respect of the principal of and interest on this Note except subject to the payment in full of the principal of and interest
on all of the Senior Indebtedness then outstanding.
(b)
Default on Senior Indebtedness
. If
there shall occur an event of default which has been declared in writing with respect to any Senior Indebtedness, as defined therein,
or in the instrument under which it is outstanding, permitting the holder to accelerate the maturity thereof and Holder shall have
received written notice thereof from the holder of such Senior Indebtedness, then, unless and until such event of default shall
have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall have been paid in full, no payment shall
be made in respect of the principal of or interest on this Note, unless within one hundred
eighty (180) days after the
happening of such event of default, the maturity of such Senior Indebtedness shall not have been accelerated. Not more
than one notice may be given to Holder pursuant to the terms of this
Section 14(b)
during any 360 day period.
(c)
Further Assurances
. By acceptance
of this Note, Holder agrees to execute and deliver customary forms of subordination agreement requested from time to time by holders
of Senior Indebtedness, and as a condition to Holder’s rights hereunder, the Company may require that Holder execute such
forms of subordination agreement;
provided
,
however
,
that
such forms shall not impose
on Holder terms less favorable than those provided herein.
(d)
Other Indebtedness
. No indebtedness
which does not constitute Senior Indebtedness shall be senior in any respect to the indebtedness represented by this Note.
(e)
Subrogation
. Subject to the
payment in full of all Senior Indebtedness, Holder shall be subrogated to the rights of the holder(s) of such Senior Indebtedness
(to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the provisions of
this
Section 14
) to receive payments and distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other than
the holders of Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of this Note; and for
purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which Holder would be entitled
except for the provisions of this Section 14 shall, as between the Company and its creditors, other than the holders of Senior
Indebtedness and Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness.
(f)
No Impairment
. Subject to the
rights, if any, of the holders of Senior Indebtedness under this
Section 14
to receive cash, securities or other properties
otherwise payable or deliverable to Holder, nothing contained in this Section 14 shall impair, as between the Company and Holder,
the obligation of the Company, subject to the terms and conditions hereof, to pay to Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent Holder, upon default hereunder, from exercising all rights, powers
and remedies otherwise provided herein or by applicable law.
(g)
Lien Subordination
. Any Lien
of Holder, whether now or hereafter existing in connection with the amounts due under this Note, on any assets or property of the
Company or any proceeds or revenues therefrom which Holder may have at any time as security for any amounts due and obligations
under this Note shall be subordinate to all Liens now or hereafter granted to a holder of Senior Indebtedness by the Company or
by law, notwithstanding the date, order or method of attachment or perfection of any such Lien or the provisions of any applicable
law.
(h)
Reliance of Holders of Senior Indebtedness
. Holder,
by its acceptance hereof, shall be deemed to acknowledge and agree that the foregoing subordination provisions are, and are intended
to be, an inducement to and a consideration of each holder of Senior Indebtedness, whether such Senior Indebtedness was created
or acquired before or after the creation of the indebtedness evidenced by this Note, and each such holder of Senior Indebtedness
shall be
deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness.
15.
Usury
. In
the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of
the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note. The Company agrees that the interest rate contracted for in connection with
the credit accommodations evidenced by this Note and the Note Purchase Agreement includes the interest rate set forth herein and
any other charges, costs, fees and expenses incident to this transaction paid by or on behalf of the Company, or any benefit received
by or on behalf of any Holder, to the extent the same are deemed interest under applicable law.
16.
Waivers
. The
Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all
other notices or demands relative to this instrument.
17.
Governing
Law and Jurisdiction
. This Note and all actions arising out of or in connection with this Agreement shall
be governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law provisions
of the State of Delaware or of any other state. This Note and all actions arising out of or in connection with this
Note shall be subject to the exclusive jurisdiction of the state and federal courts located in Los Angeles, California, and each
Holder expressly consents to such jurisdiction and waives any objection to such jurisdiction based on
forum non-conveniens
or any similar theory.
(
Signature Page Follows
)
The Company has caused
this Note to be issued as of the date first written above.
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RITTER PHARMACEUTICALS, INC.
|
|
|
|
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|
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By:
|
/s/ Andrew J. Ritter
|
|
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ANDREW J. RITTER
|
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President and Chief Executive Officer
|
SUBORDINATED CONVERTIBLE
PROMISSORY NOTE
Exhibit
10.25
THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE OF THE SECURITIES THAT IS THE SUBJECT
OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS
THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
RITTER PHARMACEUTICALS, INC.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
|
$80,000.00
|
September 8, 2014
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Los Angeles, California
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FOR VALUE RECEIVED,
RITTER
PHARMACEUTICALS, INC.
, a Delaware corporation (the “
Company
”), promises to pay to Javelin Venture Partners,
LP (“
Holder
”), or its registered assigns, in lawful money of the United States of America the principal sum
of eighty thousand dollars ($80,000), or so much thereof as may be advanced under this Subordinated Convertible Promissory Note
(this “
Note
”), together with simple interest thereon at the annual rate of
eight percent (8.00%)
per
annum (the “
Interest Rate
”), computed on the basis of the actual number of days elapsed and a year of 365 days.
This Note is one of the
subordinated convertible promissory notes (all such notes, including this Note, collectively, the “
Notes
”) issued
pursuant to the Company’s 2014(A) Note Purchase Agreement (as amended, modified or supplemented, the “
Note Purchase
Agreement
”), between the Company, Holder and the other Persons party thereto (collectively, including Holder, the “
Holders
”).
The terms and provisions of the Note Purchase Agreement are incorporated herein by this reference. This Note is a single advance
note.
The following is a statement
of the rights of Holder and the conditions to which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1.
Definitions
.
Capitalized terms not otherwise defined herein shall have the following meanings:
(a)
“
Affiliate
”
shall mean any Person under the control of, controlled by or under common control with another Person.
(b)
“
Common
Stock
” shall mean shares of the Company’s Common Stock, par value $0.001 per share.
(c)
“
Company
”
includes the entity initially executing this Note and any Person which shall succeed to or assume the obligations of the Company
under this Note.
(d)
“
Business
Day
” shall means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized
or required to close.
(e)
“
Charter
”
shall mean the Company’s Amended and Restated Certificate of Incorporation, as in effect on the date hereof and as amended
from time to time.
(f)
“
Conversion
Event
” shall mean any of conversion of this Note pursuant to Section 6 below.
(g)
“
Derivative
Securities
” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly
or indirectly), Common Stock, including options, warrants and preferred stock.
(h)
“
Event
of Default
” shall have the meaning set forth in Section 4 below.
(i)
“
Fully
Diluted Outstanding Capital
” shall mean the total number of shares of Common Stock outstanding assuming the conversion,
exchange and/or exercise of all outstanding Derivative Securities other than the Notes.
(j)
“
Lien
”
shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in,
of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional
sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing
of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.
(k)
“
Majority
in Interest
” shall mean Holders holding more than fifty percent (50%) of the aggregate outstanding principal amount of
the Notes issued pursuant to the Note Purchase Agreement.
(l)
“
Material
Adverse Effect
” shall mean a material adverse effect on (a) the Company’s financial condition or business as now
conducted or proposed to be conducted; (b) the ability of the Company to pay or perform the Obligations in accordance with the
terms of this Note and the Note Purchase Agreement and to avoid an Event of Default, or an event which, with the giving of notice
or the passage of time or both, would constitute an Event of Default; or (c) the rights and remedies of Holder under this Note
and the Note Purchase Agreement.
(m)
“
Maturity
Date
” shall mean
twelve (12)
months from date this Note is issued.
(n)
“
Obligations
”
shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Holder
of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of
money), now existing or hereafter
arising under or pursuant to the terms of this Note and the Note Purchase Agreement, including, all interest, fees, charges, expenses,
attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the Company hereunder and thereunder,
in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether or not arising after the commencement
of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 et seq.), as amended from time to time (including
post-petition interest) and whether or not allowed or allowable as a claim in any such proceeding.
(o)
“
Person
”
shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other entity or a governmental authority.
(p)
“
Preferred
Director
” means any member of the Board of Directors subject to election exclusively by the holders of one or more series
of the Company’s Preferred Stock in accordance with the Company’s certificate of incorporation, as in effect from time
to time.
(q)
“
Qualified
Equity Financing
” shall mean an equity financing pursuant to which the Company sells, with the principal purpose of raising
capital, a new class of preferred stock (the “
Preferred Securities
”) with an aggregate sales price of not less
than $3,000,000, including the principal and accrued but unpaid interest of any Notes which are converted into such Preferred Securities.
(r)
“
Sale
Event
” shall mean (i) any “person” or “group” (within the meaning of Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the outstanding voting securities
of the Company having the right to vote for the election of members of the Board of Directors, (ii) any reorganization, merger
or consolidation of the Company, other than a transaction or series of related transactions in which the holders of the voting
securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately
after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding
voting securities of the Company or such other surviving or resulting entity or (iii) a sale, lease or other disposition of all
or substantially all of the assets of the Company. Notwithstanding the forgoing, a Sale Event shall not be deemed to have occurred
upon a transfer of the Company’s capital stock, without consideration, between a stockholder of Company and an affiliate,
member or limited partner of such stockholder, a sale of Company’s equity securities in a public offering, or a sale of Company’s
equity securities to one or more venture capital investors with the primary purpose of raising capital.
(s)
“
Securities
Act
” shall mean the Securities Act of 1933, as amended.
(t)
“
Senior
Indebtedness
” shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note,
the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other
amounts due in connection with, (i) indebtedness of Company, to banks, commercial finance lenders, other lending institutions regularly
engaged in the business of lending money, or any other lenders (excluding (A) venture capital, investment banking or similar institutions
which
sometimes engage in lending
activities but which are primarily engaged in investments in equity securities and (B) equipment lenders or equipment lessors that
advance indebtedness to Company solely to be used for the purchase, finance or acquisition of equipment and where such indebtedness
is secured solely by such equipment), which is for money borrowed whether or not secured, and (ii) any such indebtedness or any
debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness, or any indebtedness arising
from the satisfaction of such Senior Indebtedness by a guarantor.
2.
Payment
.
All outstanding principal, together with any then unpaid and accrued interest and any other amounts payable hereunder, shall be
due and payable upon the earlier of (i) ten days written notice to the Company by the Holder following the Maturity Date, or (ii)
when, upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Holder
in accordance with Section 5 below. In the event that the Maturity Date falls on a date other than a Business Day, the payment
due on such date shall be made on the next Business Day. For purposes of clarity, this Note may not be repaid in the absence of
a demand for such repayment by the Holder hereof other than in connection with a Sale Event, as set forth below.
3.
Prepayment
.
This Note may not be prepaid without the prior written consent of the Holder.
4.
Events
of Default
. The occurrence of any of the following shall constitute an “
Event of Default
” under
this Note and the Note Purchase Agreement:
(a)
Failure
to Pay
. The Company shall fail to make any principal or interest payment or any other payment required under the terms
of this Note within two (2) Business Days of the date such payment is due; or
(b)
Voluntary
Bankruptcy or Insolvency Proceedings
. The Company shall (i) apply for or consent to the appointment of a receiver,
trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing
its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its
creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case
or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing; or
(c)
Involuntary
Bankruptcy or Insolvency Proceedings
. Proceedings for the appointment of a receiver, trustee, liquidator or custodian
of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings seeking liquidation,
reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency or other similar
law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or
discharged within 30 days of commencement.
5.
Rights
of Holder upon Default
. Upon the occurrence or existence of an Event of Default described
in Section 4(a)
and
at any time thereafter during the continuance of such Event of Default, Holder may, with the consent of a Majority in Interest,
by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately due and
payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived. Upon the
occurrence or existence of an Event of Default described in
Sections 4(b)
or
4(c)
, all outstanding Obligations payable
by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Note Purchase Agreement to the
contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default and,
in the case of an Event of Default described in
Section 4(a)
, subject to the consent of a Majority in Interest, Holder may
exercise any other right, power or remedy granted to it by this Note and the Note Purchase Agreement or otherwise permitted to
it by law, either by suit in equity or by action at law, or both. Notwithstanding the foregoing, if, on the date that is six (6)
months from an Event of Default described in
Section 4(a)
, and provided such Event of Default is continuing at such time,
a Majority in Interest has not exercised any or all of its rights hereunder, Holder may seek to exercise any or all rights it may
have at such time without seeking the consent of a Majority in Interest.
6.
Qualified
Equity Financing; Sale Event
.
(a)
Conversion
Upon Qualified Equity Financing
. Upon consummation of a Qualified Equity Financing during the term this Note remains
outstanding, the outstanding principal amount of and all accrued but unpaid interest under this Note shall automatically convert
into shares of Preferred Stock (“
Preferred Securities
”) at a price per share equal to seventy-five percent (75%)
of the price per share paid by the investors (other than the Holders) participating in the Qualified Equity Financing and otherwise
on the same terms as the Qualified Equity Financing.
(b)
Repayment
Upon Sale Event
. Upon the consummation of a Sale Event during the term this Note remains outstanding, the outstanding
principal amount of and all accrued but unpaid interest under this Note shall become immediately due and payable along with an
additional payment equal to one hundred percent (100%) of the original principal amount advanced hereunder.
(c)
Delivery
.
Upon conversion of this Note pursuant to a Conversion Event, the Holder hereby agrees to execute and deliver to the Company all
transaction documents related to the Conversion Event including, if applicable, customary representations and warranties and transfer
restrictions, and having the same terms as those agreements entered into by the Company’s other holders of Preferred Securities
or Common Stock, as applicable. Upon conversion of this Note pursuant to a Conversion Event, the Holder also agrees to deliver
the original of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement
acceptable to the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this
Note) for cancellation;
provided
,
however
,
that
upon consummation of the Conversion Event this Note shall
be deemed
converted and of no further
force and effect, whether or not it is delivered for cancellation as set forth in this sentence.
(d)
Fractional
Shares; Interest; Effect of Conversion
. No fractional shares shall be issued upon conversion of this Note. In lieu
of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder an amount
equal to the product obtained by multiplying the conversion price by the fraction of a share not issued pursuant to the previous
sentence. Upon conversion of this Note in full and the payment of any amounts specified in this
Section 6(d)
, the Company
shall be forever released from all its obligations and liabilities under this Note.
7.
Additional
Debt
. The Company shall not incur any Senior Indebtedness or any additional indebtedness not contemplated by the Note
Purchase Agreement without the prior approval of the holders of a Majority in Interest.
8.
Successors
and Assigns
. Subject to any restrictions on transfer described below, the rights and obligations of the Company and
Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
9.
Waiver
and Amendment
. Any provision of this Note may be amended, waived or modified upon the written consent of the Company
and a Majority in Interest; provided, however, that no such amendment, waiver or consent shall: (i) reduce the principal amount
of this Note without Holder’s written consent, or (ii) reduce the applicable Interest Rate of this Note without Holder’s
written consent.
10.
Transfer
of this Note
. Holder may not sell or otherwise dispose of this Note without the prior approval of the Company, in its
sole discretion. With respect to any proposed offer, sale or other disposition of this Note, Holder will give written notice to
the Company prior thereto, describing briefly the manner thereof, together with a written opinion of Holder’s counsel, or
other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected
without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably
satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall in its sole discretion
determine whether Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to
the Company. The Company shall so notify Holder promptly after such determination has been made. Each Note thus transferred and
each certificate representing the securities thus transferred shall bear a legend as to the applicable restrictions on transferability
in order to ensure compliance with the Securities Act, unless in the opinion of counsel for the Company such legend is not required
in order to ensure compliance with the Securities Act. The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Subject to the foregoing, transfers of this Note shall be registered upon registration books
maintained for such purpose by or on behalf of the Company. Prior to presentation of this Note for registration of transfer, the
Company shall treat the registered holder hereof as the owner and holder of this Note for the purpose of receiving all payments
of principal and interest hereon and for all other purposes whatsoever, whether or not this Note shall be overdue and the Company
shall not be affected by notice to the contrary.
11.
Assignment
by the Company
. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned, by operation
of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest. Notwithstanding
the foregoing, the Company may, with the consent of its Board of Directors (which consent includes the consent of each and every
then-serving Preferred Director), assign this Note to a new corporation (the “
Newco
”) formed for the purpose
of developing and commercializing RP-G28, the Company’s primary drug candidate for the treatment of lactose intolerance and
related purposes, in connection with the split off of that part of its business from the Company (the “
Split Off Assignment
”).
In the event of any Split Off Assignment, this Note shall become the obligation of Newco and references to the Company herein shall
be deemed references to Newco.
12.
Notices
.
All
notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and
faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Note Purchase Agreement,
or at such other address or facsimile number as the Company shall have furnished to Holder in writing. All such notices and communications
will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight
courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid.
13.
Pari
Passu Notes
. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal amount
of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes issued
pursuant to the Note Purchase Agreement. In the event Holder receives payments in excess of its pro rata share of the Company’s
payments to all Holders, then Holder shall hold in trust all such excess payments for the benefit of the other Holders and shall
pay such amounts held in trust to such other Holders upon demand by such other Holders.
14.
Subordination
.
The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all of the Company’s Senior Indebtedness.
(a)
Insolvency
Proceedings
. If there shall occur any receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy or other insolvency laws), sale of all or
substantially all of the assets, dissolution, liquidation, or any other marshaling of the assets and liabilities of the Company,
(i) no amount shall be paid by the Company in respect of the principal of, interest on or other amounts due with respect to this
Note at the time outstanding, unless and until the principal of and interest on the Senior Indebtedness then outstanding shall
be paid in full, and (ii) no claim or proof of claim shall be filed with the Company by or on behalf of Holder which shall assert
any right to receive any payments in respect of the principal of and interest on this Note except subject to the payment in full
of the principal of and interest on all of the Senior Indebtedness then outstanding.
(b)
Default
on Senior Indebtedness
. If there shall occur an event of default which has been declared in writing with respect to
any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder to accelerate
the maturity thereof and Holder shall have received written notice thereof from the holder of such Senior Indebtedness, then, unless
and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness shall
have been paid in full, no payment shall be made in respect of the principal of or interest on this Note, unless within one hundred
eighty (180) days after the happening of such event of default, the maturity of such Senior Indebtedness shall not have been accelerated.
Not more than one notice may be given to Holder pursuant to the terms of this Section 14(b) during any 360 day period.
(c)
Further
Assurances
. By acceptance of this Note, Holder agrees to execute and deliver customary forms of subordination agreement
requested from time to time by holders of Senior Indebtedness, and as a condition to Holder’s rights hereunder, the Company
may require that Holder execute such forms of subordination agreement; provided, however, that such forms shall not impose on Holder
terms less favorable than those provided herein.
(d)
Other
Indebtedness
. No indebtedness which does not constitute Senior Indebtedness shall be senior in any respect to the indebtedness
represented by this Note.
(e)
Subrogation
.
Subject to the payment in full of all Senior Indebtedness, Holder shall be subrogated to the rights of the holder(s) of such Senior
Indebtedness (to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant to the
provisions of this
Section 14
) to receive payments and distributions of assets of the Company applicable to the Senior Indebtedness.
No such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors, other
than the holders of Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of this Note; and
for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which Holder would be entitled
except for the provisions of this
Section 14
shall, as between the Company and its creditors, other than the holders of
Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of the Senior Indebtedness.
(f)
No
Impairment
. Subject to the rights, if any, of the holders of Senior Indebtedness under this Section 14 to receive cash,
securities or other properties otherwise payable or deliverable to Holder, nothing contained in this Section 14 shall impair, as
between the Company and Holder, the obligation of the Company, subject to the terms and conditions hereof, to pay to Holder the
principal hereof and interest hereon as and when the same become due and payable, or shall prevent Holder, upon default hereunder,
from exercising all rights, powers and remedies otherwise provided herein or by applicable law.
(g)
Lien
Subordination
. Any Lien of Holder, whether now or hereafter existing in connection with the amounts due under this
Note, on any assets or property of the Company or any proceeds or revenues therefrom which Holder may have at any time as security
for any amounts due and obligations under this Note shall be subordinate to all Liens now or hereafter granted to a holder of Senior
Indebtedness by the Company or by law, notwithstanding the date,
order or method of attachment
or perfection of any such Lien or the provisions of any applicable law.
(h)
Reliance
of Holders of Senior Indebtedness
. Holder, by its acceptance hereof, shall be deemed to acknowledge and agree that
the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder of Senior
Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the indebtedness evidenced
by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions
in acquiring and holding, or in continuing to hold, such Senior Indebtedness.
15.
Usury
.
In the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion
of the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal
and applied against the principal of this Note. The Company agrees that the interest rate contracted for in connection with the
credit accommodations evidenced by this Note and the Note Purchase Agreement includes the interest rate set forth herein and any
other charges, costs, fees and expenses incident to this transaction paid by or on behalf of the Company, or any benefit received
by or on behalf of any Holder, to the extent the same are deemed interest under applicable law.
16.
Waivers
.
The Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and
all other notices or demands relative to this instrument.
17.
Governing
Law and Jurisdiction
. This Note and all actions arising out of or in connection with this Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law provisions of the
State of Delaware or of any other state. This Note and all actions arising out of or in connection with this Note shall be subject
to the exclusive jurisdiction of the state and federal courts located in Los Angeles, California, and each Holder expressly consents
to such jurisdiction and waives any objection to such jurisdiction based on forum non-conveniens or any similar theory.
(
Signature Page Follows
)
The Company has caused this Note to be issued as of the date first
written above.
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew J. Ritter
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ANDREW J. RITTER
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President and Chief Executive Officer
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Exhibit 10.26
THIS NOTE HAS BEEN ISSUED IN A TRANSACTION
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND THE STATE SECURITIES
LAWS. TRANSFER OF THIS NOTE IS PROHIBITED UNLESS SUCH TRANSFER IS REGISTERED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
UNSECURED PROMISSORY NOTE
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$70,000.00
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Los Angeles, CA
October 9
, 2014
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FOR VALUE RECEIVED, Ritter
Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), with its principal place of business at 1880
Century Park East, No. 1100, Los Angeles, California 90067, promises to pay to Javelin Venture Partners, L.P. (the “
Holder
”)
the principal sum of $70,000 together with interest on the unpaid principal balance of this Unsecured Promissory Note (the “
Note
”)
from time to time outstanding at the rate of 5% per annum until paid in full. Unless there shall occur an Event of Default, as
defined below, all principal and accrued interest shall be paid upon demand by the Holder at any time after one (1) year of the
date of this Note (the “
Maturity Date
”). Interest on this Note shall be computed on the basis of a year of 365
days for the actual number of days elapsed. All payments by the Company under this Note shall be in immediately available funds.
Principal and accrued interest on this Note may be prepaid at any time by the Company without notice, premium or penalty and without
the written consent of Holder. Holder hereby acknowledges that this Note is unsecured, and that Company may have issued certain
secured notes in favor of certain parties.
This Note shall become
immediately due and payable without notice or demand upon the occurrence at any time of any of the following events of default
(individually, an “
Event of Default
” and collectively, “
Events of Default
”): (1 ) the liquidation,
termination of existence, dissolution, winding down, cessation of business or insolvency of the Company, or the appointment of
a receiver or custodian for the Company or any part of its property; (2) the institution by or against the Company of any proceedings
under the United States Bankruptcy Code or any other federal or state bankruptcy, reorganization, receivership, insolvency or other
similar law affecting the rights of creditors generally; (3) the sale of all or substantially all of the assets or business of
the Company, whether by merger, sale of assets, sale of stock or otherwise; or (4) the failure by the Company to pay any principal
or accrued interest when due hereunder. Upon the occurrence of an Event of Default, the Holder shall have then, or at any time
thereafter, all of the rights and remedies afforded by the Uniform Commercial Code as from time to time in effect in the State
of California or afforded by other applicable law. All rights and remedies of Holder shall be cumulative and Holder shall be entitled
to all the rights of a holder in due course of a negotiable instrument.
All payments by the Company
under this Note shall be applied first to the cost of collection, if any, second to accrued but unpaid interest, and third to unpaid
principal. All payments by the Company under this Note shall be made without set-off or counterclaim and be free and clear and
without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction
or withholding is imposed by law. If this
Note is not paid in accordance with its terms,
the Company shall pay to Holder, in addition to principal and accrued interest thereon, all costs of collection of the principal
and accrued interest, including, but not limited to, reasonable attorneys’ fees, court costs and other costs for the enforcement
of payment of this Note. No delay or omission on the part of the Holder in exercising any right under this Note shall operate as
a waiver of such right or of any other right of the Holder, nor shall any delay, omission or waiver on any one occasion be deemed
a bar to or waiver of the same or any other right on any future occasion. None of the terms or provisions of this Note may be excluded,
modified or amended except by a written instrument duly executed on behalf of the Holder expressly referring to this Note and setting
forth the provision so excluded, modified or amended.
In the event any one or
more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or in the event that any one or more of the provisions of this Note operates or would prospectively operate to
invalidate this Note, then and in any such event, such provision(s) only shall be deemed null and void and shall not affect any
other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and
in no way shall be affected, prejudiced, or disturbed thereby.
In the event any interest
is paid on this Note that is deemed to be in excess of the then legal maximum rate, then that portion of the interest payment representing
an amount in excess of the then legal maximum rate shall be deemed a payment of principal and applied against the principal of
this Note.
The Company and any others who may become liable
for the payment hereof jointly and severally:
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a.
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waive presentment for payment, demand, notice of demand, notice of non-payment or dishonor, protest
and notice of protest of this Note and all other notices in connection with the delivery, acceptance, performance, default, or
enforcement of the payment of this Note;
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b.
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consent to all extensions of time, renewals, postponements of time of payment of this Note or other
modifications hereof from time to time prior to or after the Maturity Date hereof, whether by acceleration or in due course, without
notice, consent or consideration to any of the foregoing;
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c.
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agree to the addition or release of any party or person primarily or secondarily liable hereon;
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d.
|
agree that Holder shall not be required first to institute any suit, or to exhaust its remedies,
against the Company or any other person or party liable hereunder in order to enforce the payment of this Note; and
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e.
|
agree that, notwithstanding the occurrence of any of the foregoing (except by the express written
release by Holder of any such person), the Company shall be and remain directly and primarily liable for all sums due under this
Note.
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All rights and obligations
hereunder shall be governed by the laws of the State of California, without regard to the conflicts of law provisions of the State
of California or any other state.
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RITTER PHARMACEUTICALS, INC.
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By:
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/s/ Andrew J. Ritter
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Andrew J. Ritter
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President
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Acknowledged and agreed
:
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JAVELIN VENTURE PARTNERS, L.P.
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Exhibit 10.27
THIS NOTE HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SALE OF THE SECURITIES THAT IS THE SUBJECT
OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF
SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS
THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS
OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
RITTER PHARMACEUTICALS, INC.
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
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$80,000.00
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October 20, 2014
Los Angeles, California
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FOR VALUE RECEIVED,
RITTER
PHARMACEUTICALS, INC.
, a Delaware corporation (the “
Company
”), promises to pay to Javelin Venture Partners,
LP (“
Holder
”), or its registered assigns, in lawful money of the United States of America the principal sum
of eighty thousand ($80,000), or so much thereof as may be advanced under this Subordinated Convertible Promissory Note (this “
Note
”),
together with simple interest thereon at the annual rate of eight percent (8.00%) per annum (the “
Interest Rate
”),
computed on the basis of the actual number of days elapsed and a year of 365 days.
This Note is one of the subordinated convertible
promissory notes (all such notes, including this Note, collectively, the “
Notes
”) issued pursuant to the Company’s
2014(A) Note Purchase Agreement (as amended, modified or supplemented, the “
Note Purchase Agreement
”), between
the Company, Holder and the other Persons party thereto (collectively, including Holder, the “
Holders
”). The
terms and provisions of the Note Purchase Agreement are incorporated herein by this reference. This Note is a single advance note.
The following is a statement
of the rights of Holder and the conditions to which this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:
1.
Definitions
. Capitalized
terms not otherwise defined herein shall have the following meanings:
(a)
“
Affiliate
” shall mean any Person under the control of, controlled by or under common control with another Person.
(b)
“
Common
Stock
” shall mean shares of the Company’s Common Stock, par value $0.001 per share.
(c)
“
Company
”
includes the entity initially executing this Note and any Person which shall succeed to or assume the obligations of the Company
under this Note.
(d)
“
Business
Day
” shall means any day that is not a Saturday, Sunday, or other day on which banks in the State of California are authorized
or required to close.
(e)
“
Charter
”
shall mean the Company’s Amended and Restated Certificate of Incorporation, as in effect on the date hereof and as amended
from time to time.
(f)
“
Conversion
Event
” shall mean any of conversion of this Note pursuant to
Section 6
below.
(g)
“
Derivative
Securities
” means any securities or rights convertible into, or exercisable or exchangeable for (in each case, directly
or indirectly), Common Stock, including options, warrants and preferred stock.
(h)
“
Event
of Default
” shall have the meaning set forth in Section 4 below.
(i)
“
Fully
Diluted Outstanding Capital
” shall mean the total number of shares of Common Stock outstanding assuming the conversion,
exchange and/or exercise of all outstanding Derivative Securities other than the Notes.
(j)
“
Lien
”
shall mean, with respect to any property, any security interest, mortgage, pledge, lien, claim, charge or other encumbrance in,
of, or on such property or the income therefrom, including, without limitation, the interest of a vendor or lessor under a conditional
sale agreement, capital lease or other title retention agreement, or any agreement to provide any of the foregoing, and the filing
of any financing statement or similar instrument under the Uniform Commercial Code or comparable law of any jurisdiction.
(k)
“
Majority
in Interest
” shall mean Holders holding more than fifty percent (50%) of the aggregate outstanding principal amount of
the Notes issued pursuant to the Note Purchase Agreement.
(l)
“
Material
Adverse Effect
” shall mean a material adverse effect on (a) the Company’s financial condition or business as now
conducted or proposed to be conducted; (b) the ability of the Company to pay or perform the Obligations in accordance with the
terms of this Note and the Note Purchase Agreement and to avoid an Event of Default, or an event which, with the giving of notice
or the passage of time or both, would constitute an Event of Default; or (c) the rights and remedies of Holder under this Note
and the Note Purchase Agreement.
(m)
“
Maturity
Date
” shall mean
twelve (12)
months
from date this Note is issued.
(n)
“
Obligations
”
shall mean and include all loans, advances, debts, liabilities and obligations, howsoever arising, owed by the Company to Holder
of every kind and description (whether or not evidenced by any note or instrument and whether or not for the payment of money),
now existing or hereafter arising under or pursuant to the terms of this Note and the Note Purchase Agreement, including, all interest,
fees, charges, expenses, attorneys’ fees and costs and accountants’ fees and costs chargeable to and payable by the
Company hereunder and thereunder, in each case, whether direct or indirect, absolute or contingent, due or to become due, and whether
or not arising after the commencement of a proceeding under Title 11 of the United States Code (11 U. S. C. Section 101 et seq.),
as amended from time to time (including post-petition interest) and whether or not allowed or allowable as a claim in any such
proceeding.
(o)
“
Person
”
shall mean and include an individual, a partnership, a corporation (including a business trust), a joint stock company, a limited
liability company, an unincorporated association, a joint venture or other entity or a governmental authority.
(p)
“
Preferred
Director
” means any member of the Board of Directors subject to election exclusively by the holders of one or more series
of the Company’s Preferred Stock in accordance with the Company’s certificate of incorporation, as in effect from time
to time.
(q)
“
Qualified
Equity Financing
” shall mean an equity financing pursuant to which the Company sells, with the principal purpose of raising
capital, a new class of preferred stock (the “Preferred Securities”) with an aggregate sales price of not less than
$3,000,000, including the principal and accrued but unpaid interest of any Notes which are converted into such Preferred Securities.
(r)
“
Sale
Event
” shall mean (i) any “person” or “group” (within the meaning of Section 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended), becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the outstanding voting securities
of the Company having the right to vote for the election of members of the Board of Directors, (ii) any reorganization, merger
or consolidation of the Company, other than a transaction or series of related transactions in which the holders of the voting
securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately
after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding
voting securities of the Company or such other surviving or resulting entity or (iii) a sale, lease or other disposition of all
or substantially all of the assets of the Company. Notwithstanding the forgoing, a Sale Event shall not be deemed to have occurred
upon a transfer of the Company’s capital stock, without consideration, between a stockholder of Company and an affiliate,
member or limited partner of such stockholder, a sale of Company’s equity securities in a public offering, or a sale of Company’s
equity securities to one or more venture capital investors with the primary purpose of raising capital.
(s)
“
Securities
Act
” shall mean the Securities Act of 1933, as amended.
(t)
“
Senior
Indebtedness
” shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note,
the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other
amounts due in connection with, (i) indebtedness of Company, to banks, commercial finance lenders, other lending institutions regularly
engaged in the business of lending money, or any other lenders (excluding (A) venture capital, investment banking or similar institutions
which sometimes engage in lending activities but which are primarily engaged in investments in equity securities and (B) equipment
lenders or equipment lessors that advance indebtedness to Company solely to be used for the purchase, finance or acquisition of
equipment and where such indebtedness is secured solely by such equipment), which is for money borrowed whether or not secured,
and (ii) any such indebtedness or any debentures, notes or other evidence of indebtedness issued in exchange for such Senior Indebtedness,
or any indebtedness arising from the satisfaction of such Senior Indebtedness by a guarantor.
2.
Payment
.
All
outstanding principal, together with any then unpaid and accrued interest and any other amounts payable hereunder, shall be due
and payable upon the earlier of (i) ten days written notice to the Company by the Holder following the Maturity Date, or (ii) when,
upon or after the occurrence of an Event of Default (as defined below), such amounts are declared due and payable by Holder in
accordance with Section 5 below. In the event that the Maturity Date falls on a date other than a Business Day, the payment due
on such date shall be made on the next Business Day. For purposes of clarity, this Note may not be repaid in the absence of a demand
for such repayment by the Holder hereof other than in connection with a Sale Event, as set forth below.
3.
Prepayment
. This
Note may not be prepaid without the prior written consent of the Holder.
4.
Events
of Default
. The occurrence of any of the following shall constitute an “Event of Default” under
this Note and the Note Purchase Agreement:
(a)
Failure
to Pay
. The Company shall fail to make any principal or interest payment or any other payment required under
the terms of this Note within two (2) Business Days of the date such payment is due; or
(b)
Voluntary
Bankruptcy or Insolvency Proceedings
. The Company shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit
in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or
any of its creditors, (iv) be dissolved or liquidated, (v) commence a voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case
or other proceeding commenced against it, or (vi) take any action for the purpose of effecting any of the foregoing; or
(c)
Involuntary
Bankruptcy or Insolvency Proceedings
. Proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Company or of all or a substantial part of the property thereof, or an involuntary case or other proceedings
seeking liquidation, reorganization or other relief with respect to the Company or the debts thereof under any bankruptcy, insolvency
or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not
be dismissed or discharged within 30 days of commencement.
5.
Rights
of Holder upon Default
. Upon the occurrence or existence of an Event of Default described in
Section
4(a)
and at any time thereafter during the continuance of such Event of Default, Holder may, with the consent of a Majority
in Interest, by written notice to the Company, declare all outstanding Obligations payable by the Company hereunder to be immediately
due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived.
Upon the occurrence or existence of an Event of Default described in
Sections 4(b)
or
4(c)
, all outstanding Obligations
payable by the Company hereunder shall automatically become immediately due and payable, without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the Note Purchase Agreement
to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default
and, in the case of an Event of Default described in
Section 4(a)
, subject to the consent of a Majority in Interest, Holder
may exercise any other right, power or remedy granted to it by this Note and the Note Purchase Agreement or otherwise permitted
to it by law, either by suit in equity or by action at law, or both. Notwithstanding the foregoing, if, on the date that is six
(6) months from an Event of Default described in
Section 4(a)
, and provided such Event of Default is continuing at such
time, a Majority in Interest has not exercised any or all of its rights hereunder, Holder may seek to exercise any or all rights
it may have at such time without seeking the consent of a Majority in Interest.
6.
Qualified
Equity Financing; Sale Event.
(a)
Conversion
Upon Qualified Equity Financing
. Upon consummation of a Qualified Equity Financing during the term this
Note remains outstanding, the outstanding principal amount of and all accrued but unpaid interest under this Note shall automatically
convert into shares of Preferred Stock (“
Preferred Securities
”) at a price per share equal to seventy-five percent
(75%) of the price per share paid by the investors (other than the Holders) participating in the Qualified Equity Financing and
otherwise on the same terms as the Qualified Equity Financing.
(b)
Repayment
Upon Sale Event
. Upon the consummation of a Sale Event during the term this Note remains outstanding, the
outstanding principal amount of and all accrued but unpaid interest under this Note shall become immediately due and payable along
with an additional payment equal to one hundred percent (100%) of the original principal amount advanced hereunder.
(c)
Delivery
. Upon
conversion of this Note pursuant to a Conversion Event, the Holder hereby agrees to execute and deliver to the Company all transaction
documents related to the Conversion Event including, if applicable, customary representations and warranties and transfer restrictions,
and having the same terms as those agreements entered into by the Company’s other holders of Preferred Securities or Common
Stock, as applicable. Upon conversion of this Note pursuant to a Conversion Event, the Holder also agrees to deliver the original
of this Note (or a notice to the effect that the original Note has been lost, stolen or destroyed and an agreement acceptable to
the Company whereby the holder agrees to indemnify the Company from any loss incurred by it in connection with this Note) for cancellation;
provided, however, that upon consummation of the Conversion Event this Note shall be deemed converted and of no further force and
effect, whether or not it is delivered for cancellation as set forth in this sentence.
(d)
Fractional
Shares; Interest; Effect of Conversion
. No fractional shares shall be issued upon conversion of this Note.
In lieu of the Company issuing any fractional shares to Holder upon the conversion of this Note, the Company shall pay to Holder
an amount equal to the product obtained by multiplying the conversion price by the fraction of a share not issued pursuant to the
previous sentence. Upon conversion of this Note in full and the payment of any amounts specified in this Section 6(d), the Company
shall be forever released from all its obligations and liabilities under this Note.
7.
Additional
Debt
. The Company shall not incur any Senior Indebtedness or any additional indebtedness not contemplated
by the Note Purchase Agreement without the prior approval of the holders of a Majority in Interest.
8.
Successors
and Assigns
. Subject to any restrictions on transfer described below, the rights and obligations of the
Company and Holder shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties.
9.
Waiver
and Amendment
. Any provision of this Note may be amended, waived or modified upon the written consent of
the Company and a Majority in Interest; provided, however, that no such amendment, waiver or consent shall: (i) reduce the principal
amount of this Note without Holder’s written consent, or (ii) reduce the applicable Interest Rate of this Note without Holder’s
written consent.
10.
Transfer
of this Note
. Holder may not sell or otherwise dispose of this Note without the prior approval of the Company,
in its sole discretion. With respect to any proposed offer, sale or other disposition of this Note, Holder will give written notice
to the Company prior thereto, describing briefly the manner thereof, together with a written opinion of Holder’s counsel,
or other evidence if reasonably satisfactory to the Company, to the effect that such offer, sale or other distribution may be effected
without registration or qualification (under any federal or state law then in effect). Upon receiving such written notice and reasonably
satisfactory opinion, if so requested, or other evidence, the Company, as promptly as practicable, shall in its sole discretion
determine whether Holder may sell or otherwise dispose of this Note, all in accordance with the terms of the notice delivered to
the Company. The Company shall so notify Holder
promptly after such determination has
been made. Each Note thus transferred and each certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance with the Securities Act, unless in the opinion
of counsel for the Company such legend is not required in order to ensure compliance with the Securities Act. The Company may issue
stop transfer instructions to its transfer agent in connection with such restrictions. Subject to the foregoing, transfers of this
Note shall be registered upon registration books maintained for such purpose by or on behalf of the Company. Prior to presentation
of this Note for registration of transfer, the Company shall treat the registered holder hereof as the owner and holder of this
Note for the purpose of receiving all payments of principal and interest hereon and for all other purposes whatsoever, whether
or not this Note shall be overdue and the Company shall not be affected by notice to the contrary.
11.
Assignment
by the Company
. Neither this Note nor any of the rights, interests or obligations hereunder may be assigned,
by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest.
Notwithstanding the foregoing, the Company may, with the consent of its Board of Directors (which consent includes the consent
of each and every then-serving Preferred Director), assign this Note to a new corporation (the “
Newco
”) formed
for the purpose of developing and commercializing RP-G28, the Company’s primary drug candidate for the treatment of lactose
intolerance and related purposes, in connection with the split off of that part of its business from the Company (the “
Split
Off Assignment
”). In the event of any Split Off Assignment, this Note shall become the obligation of Newco and references
to the Company herein shall be deemed references to Newco.
12.
Notices
. All
notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall in writing and
faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Note Purchase Agreement,
or at such other address or facsimile number as the Company shall have furnished to Holder in writing. All such notices and communications
will be deemed effectively given the earlier of (i) when received, (ii) when delivered personally, (iii) one business day after
being delivered by facsimile (with receipt of appropriate confirmation), (iv) one business day after being deposited with an overnight
courier service of recognized standing or (v) four days after being deposited in the U.S. mail, first class with postage prepaid.
13.
Pori
Passu Notes
. Holder acknowledges and agrees that the payment of all or any portion of the outstanding principal
amount of this Note and all interest hereon shall be pari passu in right of payment and in all other respects to the other Notes
issued pursuant to the Note Purchase Agreement. In the event Holder receives payments in excess of its pro rata share of the Company’s
payments to all Holders, then Holder shall hold in trust all such excess payments for the benefit of the other Holders and shall
pay such amounts held in trust to such other Holders upon demand by such other Holders.
14.
Subordination
.
The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all of the Company’s Senior Indebtedness.
(a)
Insolvency
Proceedings
. If there shall occur any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization, or arrangements with creditors (whether or not pursuant to bankruptcy
or other insolvency laws), sale of all or substantially all of the assets, dissolution, liquidation, or any other marshaling of
the assets and liabilities of the Company, (i) no amount shall be paid by the Company in respect of the principal of, interest
on or other amounts due with respect to this Note at the time outstanding, unless and until the principal of and interest on the
Senior Indebtedness then outstanding shall be paid in full, and (ii) no claim or proof of claim shall be filed with the Company
by or on behalf of Holder which shall assert any right to receive any payments in respect of the principal of and interest on this
Note except subject to the payment in full of the principal of and interest on all of the Senior Indebtedness then outstanding.
(b)
Default
on Senior Indebtedness
. If there shall occur an event of default which has been declared in writing with
respect to any Senior Indebtedness, as defined therein, or in the instrument under which it is outstanding, permitting the holder
to accelerate the maturity thereof and Holder shall have received written notice thereof from the holder of such Senior Indebtedness,
then, unless and until such event of default shall have been cured or waived or shall have ceased to exist, or all Senior Indebtedness
shall have been paid in full, no payment shall be made in respect of the principal of or interest on this Note, unless within one
hundred eighty (180) days after the happening of such event of default, the maturity of such Senior Indebtedness shall not have
been accelerated. Not more than one notice may be given to Holder pursuant to the terms of this Section 14(b) during any 360 day
period.
(c)
Further
Assurances
. By acceptance of this Note, Holder agrees to execute and deliver customary forms of subordination
agreement requested from time to time by holders of Senior Indebtedness, and as a condition to Holder’s rights hereunder,
the Company may require that Holder execute such forms of subordination agreement; provided, however, that such forms shall not
impose on Holder terms less favorable than those provided herein.
(d)
Other
Indebtedness
. No indebtedness which does not constitute Senior Indebtedness shall be senior in any respect
to the indebtedness represented by this Note.
(e)
Subrogation
.
Subject to the payment in full of all Senior Indebtedness, Holder shall be subrogated to the rights of the holder(s) of such
Senior Indebtedness (to the extent of the payments or distributions made to the holder(s) of such Senior Indebtedness pursuant
to the provisions of this
Section 14
) to receive payments and distributions of assets of the Company applicable to the Senior
Indebtedness. No such payments or distributions applicable to the Senior Indebtedness shall, as between the Company and its creditors,
other than the holders of Senior Indebtedness and Holder, be deemed to be a payment by the Company to or on account of this Note;
and for purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness to which Holder would
be entitled except for the provisions of this
Section 14
shall, as between the Company and its creditors, other than the
holders of Senior Indebtedness and
Holder, be deemed to be a payment by
the Company to or on account of the Senior Indebtedness.
(f)
No
Impairment
. Subject to the rights, if any, of the holders of Senior Indebtedness under this
Section 14
to receive cash, securities or other properties otherwise payable or deliverable to Holder, nothing contained in this
Section
14
shall impair, as between the Company and Holder, the obligation of the Company, subject to the terms and conditions hereof,
to pay to Holder the principal hereof and interest hereon as and when the same become due and payable, or shall prevent Holder,
upon default hereunder, from exercising all rights, powers and remedies otherwise provided herein or by applicable law.
(g)
Lien
Subordination
. Any Lien of Holder, whether now or hereafter existing in connection with the amounts due
under this Note, on any assets or property of the Company or any proceeds or revenues therefrom which Holder may have at any time
as security for any amounts due and obligations under this Note shall be subordinate to all Liens now or hereafter granted to a
holder of Senior Indebtedness by the Company or by law, notwithstanding the date, order or method of attachment or perfection of
any such Lien or the provisions of any applicable law.
(h)
Reliance
of Holders of Senior Indebtedness
. Holder, by its acceptance hereof, shall be deemed to acknowledge and
agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder
of Senior Indebtedness, whether such Senior Indebtedness was created or acquired before or after the creation of the indebtedness
evidenced by this Note, and each such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination
provisions in acquiring and holding, or in continuing to hold, such Senior Indebtedness.
15.
Usury
. In
the event any interest is paid on this Note which is deemed to be in excess of the then legal maximum rate, then that portion of
the interest payment representing an amount in excess of the then legal maximum rate shall be deemed a payment of principal and
applied against the principal of this Note. The Company agrees that the interest rate contracted for in connection with the credit
accommodations evidenced by this Note and the Note Purchase Agreement includes the interest rate set forth herein and any other
charges, costs, fees and expenses incident to this transaction paid by or on behalf of the Company, or any benefit received by
or on behalf of any Holder, to the extent the same are deemed interest under applicable law.
16.
Waivers
. The
Company hereby waives notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor and all
other notices or demands relative to this instrument.
17.
Governing
Law and Jurisdiction
. This Note and all actions arising out of or in connection with this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware without regard to the conflicts of law provisions
of the State of Delaware or of any other state. This Note and all actions arising out of or in
connection with this Note shall be subject
to the exclusive jurisdiction of the state and federal courts located in Los Angeles, California, and each Holder expressly consents
to such jurisdiction and waives any objection to such jurisdiction based on
forum non
-
conveniens
or any similar theory.
(Signature Page Follows)
The Company has caused this Note to be issued
as of the date first written above.
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Ritter Pharmaceuticals, Inc.
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By:
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/s/ Andrew J. Ritter
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Andrew J. Ritter
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Founder and President
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Subordinated Convertible Promissory Note
Exhibit 10.28
Ritter
Pharmaceuticals, Inc.
Series
C Preferred Stock and Warrant Purchase Agreement
This
Series C Preferred Stock and Warrant Purchase Agreement
(the “
Agreement
”) is made as of December
4, 2014, by and among
Ritter Pharmaceuticals,
Inc
., a Delaware corporation (the “
Company
”), and those investors listed on
Exhibit A
hereto, each of which is herein referred to as an “Investor.”
RECITALS
Whereas
,
on the terms and subject to the conditions set forth in this Agreement, the Company desires to issue and sell to the Investors
and each Investor, severally and not jointly, wishes to purchase from the Company, shares of the Company’s Series C Preferred
Stock, par value $0.001 per share (the “
Series C Preferred Stock
”), with the designation, preferences and rights
set forth in the Restated Certificate of Incorporation of the Company attached hereto as
Exhibit B
(the “
Restated
Certificate
”), and warrants to purchase, on the terms specified therein, shares of the Common Stock, par value $0.001
per share, of the Company, such warrants to be in substantially the form set forth in
Exhibit C
attached hereto (the
“
Warrants
”).
AGREEMENT
Now,
Therefore
, in consideration of the foregoing recitals and the mutual promises, representations, warranties, and covenants
hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1.
Purchase
and Sale of Shares.
1.1
Sale
of Shares.
(a)
The
Company shall have adopted and filed the Restated Certificate with the Secretary of State of the State of Delaware prior to the
Closing and authorized the sale of up to 4,500,000 shares of Series C Preferred Stock and Warrants to purchase up to an aggregate
of 4,500,000 shares of the Company’s Common Stock, par value $0.001 per share (the “
Common Stock
”).
(b)
Subject
to the terms and conditions of this Agreement, each Investor agrees, severally and not jointly, to purchase, and the Company agrees
to sell and issue to each Investor, (i) that number of shares of the Company’s Series C Preferred Stock set forth opposite
each Investor’s name on
Exhibit A
hereto at the per share purchase price of $1.30 (the “
Purchase Price
”)
and (b) a Warrant to purchase that number of shares of Common Stock set forth opposite each Investor’s name on
Exhibit
A
hereto at a purchase price of $0.001 (the “
Warrant Purchase Price
”) for each share of Common Stock
subject to such Warrant.
(c)
The
shares of Series C Preferred Stock sold to the Investors pursuant to this Agreement are hereinafter referred to as the “
Shares
.”
The total amount of Common Stock and other securities issuable upon conversion of the Shares is hereinafter
referred to as the “
Conversion
Stock
.” The shares of Common Stock issuable upon exercise of the Warrants are hereinafter referred to as the “
Warrant
Shares
.” The Shares, the Conversion Stock, the Warrants and the Warrant Shares are hereinafter collectively referred
to as the “
Securities
.”
1.2
Initial
Closing
.
The initial closing of the sale and purchase of the Shares and Warrants under this
Agreement shall take place remotely via the exchange of documents and signatures on the date hereof, or at such other place, time
and date as may be agreed by the Company and the Investors, orally or in writing (the “
Initial Closing
”).
At the Initial Closing, (a) the Company shall deliver to each Investor (within the timeframe noted in Section 5.7 below) (i) a
certificate representing the Shares which such Investor is purchasing and (ii) a Warrant in favor of such Investor for the number
of shares of Warrant Shares specified opposite such Investor’s name, under the heading “No. of Shares of Common Stock
Subject to Warrant,” on
Exhibit A
attached hereto against (b) delivery to
the Company by such Investor of a check payable to the Company’s order, wire transfer to such account as the Company may
specify in writing and/or or cancellation of indebtedness of the Company to the Investor, the amount of which payment, wire transfer
and/or cancellation of indebtedness shall be in the aggregate amount of the purchase price for the Shares and the Warrant being
acquired by such Investor as specified on Exhibit A attached hereto.
1.3
Subsequent
Closings
. At any time on or before ninety (90) days after the Initial
Closing, the Company may sell up to the balance of the Shares and Warrants not sold at the Initial Closing (each such sale, a
“
Subsequent Closing
” and, along with the Initial Closing, the “Closings”)
to such persons or entities as may be approved by (a) the Company’s Board of Directors and (b) unless such persons or entities
are currently a holder of any of the Preferred Stock of the Company prior to the purchase of Shares pursuant hereto, Javelin Venture
Partners, L.P. All such sales shall be made on the terms and conditions set forth in this Agreement. Any shares and warrants sold
pursuant to this Section 1.3 shall be deemed to be “Shares” and “Warrants,” respectively, for all purposes
under this Agreement, and any purchasers thereof shall be deemed to be “Investors” for all purposes under this Agreement
and the Amended and Restated Investors’ Rights Agreement, dated as of November 17, 2010 (as amended to date, the “
Investors’
Rights Agreement
”), as the Investors’ Rights Agreement shall be further amended
by that certain amendment thereto in the form attached hereto as
Exhibit D
(the
“
Amendment;
” and, together with this Agreement and the Investors’ Rights
Agreement, the “
Financing Agreements
”). Should any such sales be made, the
Company shall prepare and distribute to the Investors a revised
Exhibit A
to this
Agreement reflecting such sales. Such Investors shall become signatories to the Financing Agreements without the need for an amendment
to any of the Financing Agreements except to add such person’s or entity’s name to the appropriate exhibit to such
Financing Agreements, and shall have the rights and obligations hereunder and thereunder, in each case as of the date of the applicable
Closing.
2.
Representations
and Warranties of the Company
. A Schedule of Exceptions, attached as
Exhibit E
(a “Schedule of Exceptions”) and updated as of each Subsequent Closing to the extent applicable, shall be delivered
to the Investors in connection with each Closing. Except as set forth on the Schedule of Exceptions delivered to the Investors
at the applicable Closing, the Company hereby represents and warrants to the Investors as follows:
2.1
Organization,
Good Standing and Qualification
. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify could reasonably be expected to have a material adverse effect on the Company’s
financial condition or business as now conducted or proposed to be conducted (a “
Material Adverse Effect
”).
2.2
Capitalization
.
Prior to the Initial Closing, the authorized capital of the Company consists of:
(a)
25,266,146
shares of Preferred Stock (the “
Preferred Stock
”), of which 7,200,000 shares have been designated Series A-1
Preferred Stock, 1,687,500 shares have been designated Series A-2 Preferred Stock, 4,220,464 shares have been designated Series
A-3 Preferred Stock, 7,658,182 shares have been designated Series B Preferred Stock and 4,500,000 shares have been designated Series
C Preferred Stock. 7,200,000 shares of Series A-1 Preferred Stock are issued and outstanding, 1,687,500 shares of Series A-2 Preferred
Stock are issued and outstanding, 4,220,464 shares of Series A-3 Preferred Stock are outstanding, 6,188,188 shares of Series B
Preferred Stock are issued and outstanding and no shares of Series C Preferred Stock are issued or outstanding. The rights, preferences,
privileges and restrictions of the Preferred Stock are as stated in the Restated Certificate.
(b)
50,000,000
shares of Common Stock (the “
Common Stock
”) of which 3,327,500 shares are issued and outstanding.
(c)
14,630,034
shares of Common Stock reserved for issuance under the Company’s 2008 Stock Plan, 1,833,000 of which remain available for
future issuance, and 500,000 shares of Common Stock reserved for issuance under the Company’s 2009 Stock Plan, 367,000 of
which remain available for future issuance.
(d)
Except
as provided herein and as set forth in the Schedule of Exceptions and except for (i) the conversion privileges of the Preferred
Stock and (ii) the right of first refusal provided in the Investors’ Rights Agreement, there are no other outstanding options,
warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of
any shares of its capital stock.
2.3
Subsidiaries
.
The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other
business entity.
2.4
Authorization
.
All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution
and delivery of the Financing Agreements, the performance of all obligations of the Company under such agreements and the authorization,
issuance (or reservation for issuance) and delivery of the Shares and Warrants being sold hereunder and the Conversion Stock and
Warrant Shares has been taken or will be taken prior to the Initial Closing, and the Financing Agreements and the Warrants (in
each case, following execution and delivery thereof, as applicable) constitute valid and legally binding obligations of the Company,
enforceable in accordance with their terms.
2.5
Valid
Issuance of Preferred and Common Stock.
(a)
The
Shares which are being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully paid, nonassessable and free of restrictions on
transfer other than restrictions on transfer under the Financing Agreements and applicable state and federal securities laws. The
Warrants which are being purchased by the Investors hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued and free of restrictions on transfer other than restrictions
on transfer thereunder, under the Financing Agreements and under applicable state and federal securities laws. Based in part upon
the representations of the Investors in this Agreement, the Shares and Warrants will be issued in compliance with all applicable
federal and state securities laws. The Conversion Stock and the Warrant Shares have been duly and validly reserved for issuance
and, in the case of the Conversion Stock, upon issuance in accordance with the terms of the Restated Certificate and, in the case
of the Warrant Shares, upon issuance in accordance with the terms of the Warrants, shall be duly and validly issued, fully paid,
nonassessable and free of restrictions on transfer other than restrictions on transfer under the Financing Agreements, any agreements
to which the Investors may become a party after the date hereof, and applicable state and federal securities laws and issued in
compliance with all applicable securities laws, as presently in effect, of the United States and each of the states whose securities
laws govern the issuance of any of the Shares hereunder.
(b)
The
outstanding shares of Common Stock are all duly and validly authorized and issued, fully paid and nonassessable and were issued
in compliance with all applicable federal and state securities laws.
2.6
Governmental
Consents
. No consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company
is required in connection with the consummation of the transactions contemplated by this Agreement, except for qualification (or
taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Securities
under applicable federal securities laws and state Blue Sky laws, which filings and qualifications, if required, will be accomplished
in a timely manner.
2.7
Litigation
.
There is no action, suit, proceeding or investigation pending or, to the knowledge of the Company, currently threatened against
the Company which questions the validity of the Financing Agreements or the right of the Company to enter into such agreements,
or to consummate the transactions contemplated hereby or thereby, or which might result, either individually or in the aggregate,
in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The
foregoing includes, without limitation, actions pending or to the Company’s knowledge threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company’s employees, their use in connection with the Company’s
business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any
agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or
government
agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
2.8
Proprietary
Information Agreements
. Each present employee and officer of the Company with access to confidential
information of the Company or involved in the development of the Company’s Intellectual Property has executed a confidentiality
and inventions assignment agreement (the “
Proprietary Information Agreement
”),
a form of which is available for review upon request to the Company, and no exceptions have been taken by any such employee or
officer to the terms of such agreement. The Company, after reasonable investigation, is not aware that any of its employees or
consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. All present consultants
to or vendors of the Company with access to confidential information of the Company are parties to a written agreement substantially
similar to the Proprietary Information Agreement under which, among other things, each such consultant or vendor is obligated to
maintain the confidentiality of information of the Company.
2.9
Intellectual
Property.
(a)
Ownership
.
The Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses (software or otherwise), information, processes and similar proprietary rights (“
Intellectual Property
”)
necessary to the business of the Company as presently conducted, the lack of which could reasonably be expected to have a Material
Adverse Effect, without any conflict with or infringement of the rights of others. Except for agreements with its own employees
or consultants, standard end-user license agreements, support/maintenance agreements and agreements entered in the ordinary course
of the Company’s business, there are no outstanding options, licenses or agreements relating to the Intellectual Property,
and the Company is not bound by or a party to any options, licenses or agreements with respect to the Intellectual Property of
any other person or entity. The Company has not received any written communication alleging that the Company has violated or, by
conducting its business as currently conducted, would violate any of the Intellectual Property of any other person or entity, nor
is the Company aware of any basis therefor. The Company is not obligated to make any payments by way of royalties, fees or otherwise
to any owner or licensor of or claimant to any Intellectual Property with respect to the use thereof in connection with the conduct
of its business as presently conducted. There are no agreements, understandings, instruments, contracts, judgments, orders or decrees
to which the Company is a party or by which it is bound which involve indemnification by the Company with respect to infringements
of Intellectual Property.
(b)
No
Breach by Employees
. The Company is not aware that any of its employees is obligated under any contract or other agreement,
or subject to any judgment, decree or order of any court or administrative agency, that would materially interfere with the use
of his or her efforts to promote the interests of the Company or that would conflict with the Company’s business as presently
conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees
of the Company, nor the conduct of the Company’s business as presently conducted, will, to the Company’s knowledge,
conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant
or instrument under which any of such
employees is now obligated.
The Company does not believe it is or will be necessary to use any inventions of any of its employees made prior to their employment
by the Company.
2.10
Compliance
with Other Instruments.
(a)
The
Company is not in violation or default of any provisions of its Restated Certificate or Bylaws or of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of federal
or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement and the
other Financing Agreements, and the consummation of the transactions contemplated hereby and thereby will not result in any violation,
which could result in a Material Adverse Effect, or be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event
which results in the creation of any lien, charge or encumbrance upon any assets of the Company.
(b)
The
Company has avoided every condition, and has not performed any act, the occurrence of which would result in the Company’s
loss of any right granted under any license, distribution or other agreement.
2.11
Disclosure
.
The Company has fully provided each Investor with all the information which such Investor has requested for deciding whether to
purchase the Shares and Warrants and all information which the Company believes is reasonably necessary to enable such Investor
to make such decision. Neither this Agreement nor any other statements, exhibits or certificates made or delivered in connection
herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein
or therein not misleading which has not been, prior to the Closing, corrected or amended.
2.12
Registration
Rights
. Except as provided in the Investors’ Rights Agreement, the Company has not
granted or agreed to grant any rights to register any securities of the Company with any governmental entity, including piggyback
rights, to any person or entity.
2.13
Title
to Property and Assets
. The Company owns its property and assets free and clear of all mortgages,
liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially
impair the Company’s ownership or use of such property or assets. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.14
Private
Placement
. Subject in part to the truth and accuracy of the Investors’ representations
set forth in this Agreement, the offer, sale and issuance of the Shares and Warrants as contemplated by this Agreement is exempt
from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), and neither the
Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption.
2.15
Financial
Statements
. The Company has delivered to the Investors the unaudited balance sheet and statement
of operations of the Company (the “
Financial Statements
”) as of and for the
ten month period ended October 31, 2014 (the “
Balance Sheet Date
”). The Financial
Statements are correct in all material respects and present fairly the financial condition and operating results of the Company
as of the date(s) and during the period(s) indicated therein.
2.16
Changes
.
To the Company’s knowledge, since the Balance Sheet Date, there has not been any event or condition of any type that has
had a Material Adverse Effect.
2.17
Material
Contracts
. Except for the agreements explicitly contemplated hereby, there are no agreements,
understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party
or by which it is bound which may involve (a) obligations of, or payments to, the Company in excess of $25,000 (other than obligations
of, or payments to, the Company arising from purchase or sale agreements entered into in the ordinary course of business), or (b)
the license of any patent, copyright, trade secret or other proprietary right to or from the Company, or (c) the grant of rights
to manufacture, produce, assemble, license, market or sell the Company’s products or affect the Company’s exclusive
right to develop, manufacture, assemble, distribute, market or sell ‘its products (each, a “
Material Contract
,”
collectively the “
Material Contracts
”). All of the Material Contracts are
valid, binding and in full force and effect in all material respects, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies
and to general principles of equity. The Company is not in material default under any of such Material Contract.
2.18
Agreements;
Action.
(a)
Except
for the Financing Agreements and agreements between the Company and its employees with respect to sales of the Company’s
Common Stock, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors,
affiliates, or any affiliate thereof.
(b)
There
are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments by the
Company in excess of, $25,000 other than in the ordinary course of the Company’s business, or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company, or (iii) the granting of any rights affecting the development,
manufacture, licensing, marketing, sale or distribution of the Company’s products or services or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
(c)
The
Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess
of $10,000 or, in the case of indebtedness and/or liabilities individually less than $10,000, in excess of $30,000 in the aggregate,
(iii) made any loans or advances to any person, other than
ordinary advances for travel
expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d)
The
Company has not entered into any letter of intent, memorandum of understanding or other similar document (i) with any representative
of any corporation or corporations regarding the merger of the Company with or into any such corporation or corporations, (ii)
with any representative of any corporation, partnership, association or other business entity or any individual regarding the sale,
conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Company would be disposed of, or (iii) regarding any other form
of liquidation, dissolution or winding up of the Company.
(e)
For
the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe
are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.
2.19
Permits
.
The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which would have a Material Adverse Effect, and believes it can obtain, without undue burden or expense,
any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other similar authority.
2.20
Brokers
or Finders
. The Company has not incurred, and will not incur, directly or indirectly, as
a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or
any similar charges in connection with this Agreement or any of the transactions contemplated hereby.
2.21
Employees
.
To the Company’s knowledge, there are no strike, labor dispute or union organization activities pending or threatened between
it and its employees. To the Company’s knowledge, none of its employees belongs to any union or collective bargaining unit.
The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. The Company is not aware that
any officer or key employee intends to terminate his employment with the Company, nor does the Company have a present intention
to terminate the employment of any officer or key employee. Subject to general principles related to wrongful termination of employees,
the employment of each officer and employee of the Company is terminable at the will of the Company.
2.22
Obligations
to Related Parties
. No employee, officer, director or, to the Company’s knowledge,
stockholder of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or
committed to make loans or extend or guarantee credit) to any of them other than (a) for payment of salary for services rendered,
(b) reimbursement for reasonable expenses incurred on behalf of the Company, and (c) for other
standard
employee benefits made generally available to all employees (including stock option agreements outstanding under any stock option
plan approved by the Company’s Board of Directors and stock purchase agreements approved by the Company’s Board of
Directors). To the Company’s knowledge, none of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation
that competes with the Company, except in connection with the ownership of stock in publicly-traded companies. To the Company’s
knowledge, no employee, officer, director or stockholder, nor any member of their immediate families, is, directly or indirectly,
interested in any material contract with the Company (other than such contracts as relate to any such person’s ownership
of capital stock or other securities of the Company).
3.
Representations
and Warranties of the Investors
. Each Investor hereby represents and warrants that:
3.1
Authorization
.
The Financing Agreements constitute its valid and legally binding obligations, enforceable in accordance with their terms.
3.2
Purchase
Entirely for Own Account
. This Agreement is made with such Investor in reliance upon such
Investor’s representation to the Company, which by such Investor’s execution of this Agreement such Investor hereby
confirms, that the Securities will be acquired for investment for such Investor’s own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents
that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the Securities. Each Investor represents that it has
full power and authority to enter into the Financing Agreements.
3.3
Disclosure
of Information
. The Investor believes it has received all the information it considers necessary
or appropriate for deciding whether to purchase the Shares and the Warrants. Each Investor further represents that it has had an
opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Shares
and the Warrants. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section
2 of this Agreement or the right of the Investors to rely thereon.
3.4
Investment
Experience
. The Investor is an “accredited investor” as that term is defined
in Rule 501 of Regulation D promulgated under the Securities Act, has filled out and executed the Accredited Investor Questionnaire
attached hereto as
Exhibit F-1
and the Rule 506 Disqualification Event Questionnaire
attached hereto as
Exhibit F-2
and is an investor in securities of companies in
the development stage and acknowledges that it is able to protect its interests, and bear the economic risk of its investment and
has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the
investment in the Securities. If other than an individual, such Investor also represents it has not been organized for the purpose
of acquiring the Shares or Warrants or, if Investor has been formed for
the
purpose of acquiring the Shares or Warrants, then each of the beneficial owners of Investor is an “accredited investor”
and individually meets the criteria described in this Section 3.4.
3.5
Restricted
Securities
. The Investor understands that the Shares and the Warrants it is purchasing and
the Conversion Stock and Warrant Shares are characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited
circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the Securities Act,
as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.
3.6
No
Public Market
. The Investor understands that no public market now exists for any of the securities
issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s
securities.
3.7
Economic
Risk
. The Investor understands that the Company has limited financial and operating history
and that investment in the Company involves substantial risks. The Investor understands all of the risks related to the purchase
of the Securities. The Investor further understands that the purchase of the Securities will be a highly speculative investment.
The Investor is able, without impairing the Investor’s financial condition, to hold the Securities for an indefinite period
of time and to suffer a complete loss of the Investor’s investment.
3.8
Brokers
or Finders
. The Company has not, and will not, incur, directly or indirectly, as a result
of any action taken by such Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar
charges in connection with this Agreement.
3.9
Tax
Liability
. The Investor has reviewed with its own tax advisors the federal, state, local
and foreign tax consequences of this investment and the transactions contemplated by this Agreement. It relies solely on such advisors
and not on any statements or representations of the Company or any of its agents. It understands that it (and not the Company)
shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by
this Agreement.
3.10
Further
Limitations on Disposition
. Without in any way limiting the representations set forth above,
each Investor further agrees not to make any disposition of all or any portion of the Shares, the Warrants, the Conversion Stock
or the Warrant Shares unless and until:
(a)
There
is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement;
(b)
Such
Investor shall have (i) notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement
of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares
under the Securities Act; or
(c)
Notwithstanding
the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a
transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires
after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession
of any partner to such Investor’s spouse or lineal descendants or ancestors, if the transferee agrees in writing to be subject
to the terms hereof to the same extent as if such transferee were an original Investor hereunder.
3.11
Legends
.
It is understood that the certificates evidencing the Securities may bear one or all of the following legends:
(a)
“
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT
.”
(b)
Any
legend required by the laws of the State of California or any other applicable state, including any legend required by the California
Department of Corporations and Sections 417 and 418 of the California Corporations Code.
3.12
Representation
by Counsel
. The Investor has been represented by counsel of its own choosing or had an opportunity
to be so represented. The Investor has, personally or by and through its duly authorized representatives, read this Agreement and
all exhibits hereto (together, the “
Constituent Documents
”). The Investor
is fully aware of the contents and legal effect of the Constituent Documents. The paragraphs contained herein recite the sole consideration
for this Agreement, that all of any agreements, expectations and understandings are embodied and expressed herein and that the
Investor enters into this Agreement freely, without coercion and based upon its own judgment and not in reliance upon any representations
or promises made by the management, or any member of the management of the Company, other than those contained herein.
4.
California
Commissioner of Corporations
. THE SALE OF THE SECURITIES THAT IS THE SUBJECT OF THIS AGREEMENT HAS
NOT BEEN QUALIFIED WITH THE COMMISSION OF CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR THE
PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF THE SECURITIES
IS EXEMPT FROM QUALIFICATION BY 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
5.
Conditions
of Investors’ Obligations at the applicable Closing
. The obligations of each Investor
under Section 1 of this Agreement are subject to the fulfillment on or before the applicable Closing of each of the following conditions,
the waiver of which shall not be effective against an Investor participating in the applicable Closing unless such Investor consents
thereto in writing:
5.1
Representations
and Warranties
. The representations and warranties of the Company contained in Section 2
shall be true on and as of the date of the Initial Closing with the same effect as though such representations and warranties had
been made on and as of the date of this Agreement and true in all material respects on and as of the date of any Subsequent Closing.
5.2
Performance
.
The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the applicable Closing.
5.3
Blue
Sky
. At or prior to the applicable Closing, the Company shall have obtained all necessary
federal securities law and state Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required
for the offer and sale of the Shares, the Warrants, the Conversion Stock and the Warrant Shares being sold at such Closing.
5.4
Amendment
to Investors’ Rights Agreement
. The Company shall have entered into the Amendment.
5.5
Restated
Certificate
. The Restated Certificate shall have been duly authorized, executed and filed
with and accepted by the Secretary of State of the State of Delaware.
5.6
Closing
Deliverables
. The Company shall have delivered to counsel to the Investors the following:
(a)
a
certificate executed by the Chief Executive Officer or President of the Company on behalf of the Company, in substantially the
form of
Exhibit G
, certifying the satisfaction of the conditions to the applicable Closing listed in Sections 5.1
and 5.2;
(b)
a
certificate of the Secretary of State of the State of Delaware, dated as of a date within five days of the date of the applicable
Closing, with respect to the good standing of the Company; and
(c)
a
certificate of the Company executed by the Company’s Secretary, in substantially the form of
Exhibit H
, attaching
and certifying to the truth and correctness of (i) the Restated Certificate, (ii) the bylaws, and (iii) the Company’s Board
of Directors and stockholder resolutions adopted in connection with the transactions contemplated by this Agreement.
5.7
Stock
Certificates and Warrants
. The Company shall deliver to each Investor a certificate representing
the Shares and the Warrant such Investor is purchasing in the applicable Closing as soon as reasonably practicable after such Closing.
5.8
No
Material Adverse Change
. There shall not have occurred between the date hereof and the applicable
Closing any event or condition of any character that has had or would reasonably be expected to have a Material Adverse Effect
on the Company.
6.
Conditions
of the Company’s Obligations at the applicable Closing
. The obligations of the Company
to each Investor under Section 1 of this Agreement are subject to the fulfillment on or before the applicable Closing of each of
the following conditions, the waiver of which shall not be effective unless consented to in writing by the Company:
6.1
Representations
and Warranties
. The representations and warranties of each Investor contained in Section
3 shall be true on and as of the date of the Closing in which such Investor purchases Shares and a Warrant with the same effect
as though such representations and warranties had been made on and as of the date of this Agreement.
6.2
Payment
of Purchase Price
. All of the Investors in the applicable Closing shall have delivered the
purchase price specified in Section 1.1(b) of this Agreement.
6.3
Investors’
Rights Agreement
. Each Investor at or prior to the applicable Closing shall have entered
into the Amendment and, if not then a party thereto, the Investors’ Rights Agreement.
6.4
Blue
Sky
. At or prior to the applicable Closing, the Company shall have obtained all necessary
federal securities law and state Blue Sky law permits and qualifications, or have the availability of exemptions therefrom, required
for the offer and sale of the Shares, the Warrants, the Conversion Stock and the Warrant Shares.
7.
Miscellaneous.
7.1
Survival
of Warranties
. The warranties, representations and covenants of the Company and Investors
contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the applicable Closing
and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the
Company.
7.2
Successors
and Assigns
. The terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended
to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations,
or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.
7.3
Governing
Law
. This Agreement shall be governed by and construed under the laws of the State of Delaware
as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware.
7.4
Counterparts
.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together
shall constitute one and the same instrument
7.5
Titles
and Subtitles
. The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
7.6
Notices
.
Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered
or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party in
Exhibit
A
or in the case of the Company at 1801 Century Park East, No. 1820, Los Angeles, California
90067, Attn: President, or at such other address as such party may designate by ten (10) days’ advance written notice to
the other parties, with a copy, which shall not constitute notice, to Reed Smith LLP, 1901 Avenue of the Stars, Suite 700, Los
Angeles, California 90067, Attn: Michael Sanders.
7.7
Finder’s
Fee
. Each party represents that it neither is nor will be obligated for any finders’
fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending
against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or representatives
is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation
in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for
which the Company or any of its officers, employees or representatives is responsible.
7.8
Expenses.
(a)
The
Company shall pay its own expenses in connection with the transactions contemplated by this Agreement. The Company shall pay the
actual hourly fees and expenses of legal counsel retained by the Investors to assist in the transactions contemplated by this Agreement,
not to exceed $25,000 in the aggregate, if the initial Closing is consummated.
(b)
If
any action at law or in equity is necessary to enforce or interpret the terms of this Agreement (including any exhibit or schedule
hereto), the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition
to any other relief to which such party may be entitled.
7.9
Amendments
and Waivers
. Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Investors holding at least a majority of the outstanding Shares (or the Conversion Stock).
Any amendment or waiver effected in accordance with this Section shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder
of all such securities, and the Company.
7.10
Severability
.
If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and
the
balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with
its terms.
7.11
Aggregation
of Stock
. All Shares held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights under this Agreement.
7.12
Stock
Splits
. All references to numbers of shares in this Agreement shall be appropriately adjusted
to reflect any stock dividend, split, combination or other recapitalization of shares by the Company occurring after the date of
this Agreement.
7.13
Entire
Agreement
. This Agreement, and the documents referred to herein constitute the entire agreement
between the parties hereto pertaining to the subject matter hereof; and any and all other written or oral agreements existing between
the parties hereto are expressly canceled.
[Signature page follows]
In
Witness Whereof
, the parties have executed this Agreement as of the date set forth above.
|
|
“Company”
|
|
|
|
|
|
Ritter Pharmaceuticals, Inc.
|
|
|
|
|
|
|
By:
|
/s/ Michael D. Step
|
|
|
|
Michael D. Step,
|
|
|
|
Chief Executive Officer
|
In
Witness Whereof
, the parties have executed this Agreement as of the date set forth above written.
|
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“Investors”
|
|
|
|
|
|
Javelin Venture Partners, L.P.
|
|
|
|
|
|
|
By:
|
Javelin Venture Partners GP, L.P.
|
|
|
Its:
|
General Partner
|
|
|
|
|
|
|
By:
|
Javelin Venture Partner GP, LLC
|
|
|
Its:
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General Partner
|
|
|
|
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|
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By:
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/s/ Noah Doyle
|
|
|
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Noah Doyle, Managing Director
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SJ INVESTMENT COMPANY, LLC
|
|
|
|
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|
|
By:
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/s/ Dan Nathanson
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Dan Nathanson, Managing Director
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THE KURTZ McDERMOTT FAMILY TRUST
|
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By:
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/s/ Cynthia Kurtz
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Cynthia Kurtz, Trustee
|
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By:
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/s/ James McDermott
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|
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|
James McDermott, Trustee
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In
Witness Whereof
, the parties have executed this Agreement as of the date set forth above written.
|
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JAVELIN VENTURE PARTNERS I SPV I, LLC
|
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|
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By: Javelin Venture Partners GP, L.P.
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Its: General Partner
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By: Javelin Venture Partners GP, LLC
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Its: General Partner
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By:
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/s/ Noah Doyle
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|
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Name: Noah Doyle
|
|
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Title: Managing Director
|
In
Witness Whereof
, the parties have executed this Agreement as of the date set forth above written.
|
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“Investors”
|
|
|
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|
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/s/ Roger Markowitz
|
|
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Roger Markowitz
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EXHIBIT A
SCHEDULE OF INVESTORS
Initial Closing
|
Name and Address
|
|
No.
of Series C
Preferred Stock
Shares
|
|
|
No.
of Shares of
Common Stock
Subject to Warrant
|
|
|
Aggregate
Purchase
Price of Shares and
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
Javelin Venture Partners, L.P.*
101 Spear Street
Suite 255
San Francisco, CA 94105
|
|
|
595,052
|
|
|
|
595,052
|
|
|
$
|
598,404.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javelin Venture Partners I SPV I, LLC
c/o 101 Spear Street
Suite 255
San Francisco, CA 94105
|
|
|
473,764
|
|
|
|
473,764
|
|
|
$
|
616,366.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SJ Investment Company, LLC**
501 Santa Monica Blvd.
Santa Monica, CA 90401
|
|
|
26,736
|
|
|
|
26,736
|
|
|
$
|
26,094.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jon Price
620 Pearl Street, Apt. E
Boulder, CO 80302
|
|
|
38,461
|
|
|
|
38,461
|
|
|
$
|
50,037.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Kurtz McDermott Family Trust
710 S. Arroyo Blvd.
Pasadena, CA 91105
|
|
|
15,384
|
|
|
|
15,384
|
|
|
$
|
20,014.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL:
|
|
|
1,149,397
|
|
|
|
1,149,397
|
|
|
$
|
1,310,918.60
|
|
*Includes consideration consisting of cash and
the cancellation of principal and accrued but unpaid interest (a) of $527,273.42 (as of December 4, 2014) under those certain Subordinated
Convertible Promissory Notes of the Company in the aggregate principal amount of $510,000 (and converted at 75% of the purchase
price for the Series C Preferred Stock per the terms of the notes for an aggregate of 540,793 shares, rounded down to the nearest
whole share), which notes were issued in 2014 by the Company to Javelin Venture Partners, L.P. and (b) of $70,536.99 under an unsecured
promissory note, dated October 9, 2014, in the principal amount of $70,000 (which note converted at 100% of the purchase price
for the Series C Preferred Stock for 54,259 rounded down to the nearest whole share), which note was issued by the Company in favor
of Javelin Venture Partners, L.P.
**Includes for SJ Investment Company LLC consideration
consisting of cash and the cancellation of principal and accrued but unpaid interest of $26,068.49 (as of December 4, 2014) under
that certain Subordinated Convertible Promissory Notes of the Company in the aggregate principal amount of $25,000 (and converted
at 75% of the purchase price for the Series C Preferred Stock per the terms of the note for the shares noted above, rounded down
to the nearest whole share), which note was issued in 2014 by the Company to SJ Investment Company LLC. Purchase price for the
Warrant is $26.74.
Subsequent Closing –
December 8, 2014
|
Name
and Address
|
|
No.
of Series C
Preferred Stock
Shares
|
|
|
No.
of Shares of
Common Stock
Subject to Warrant
|
|
|
Aggregate
Purchase
Price of Shares and
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Javelin Venture Partners I SPV I, LLC
c/o 101 Spear Street
Suite 255
San Francisco, CA 94105
|
|
|
1,833,927
|
|
|
|
1,833,927
|
|
|
$
|
2,385,939.03
|
|
Second Subsequent Closing
– December 19, 2014
|
Name
and Address
|
|
No.
of Series C
Preferred Stock
Shares
|
|
|
No.
of Shares of
Common Stock
Subject to Warrant
|
|
|
Aggregate
Purchase
Price of Shares and
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger Markowitz
|
|
|
7,692
|
|
|
|
7,692
|
|
|
$
|
10,007.30
|
|
EXHIBIT B
RESTATED CERTIFICATE OF
INCORPORATION
EXHIBIT C
FORM OF WARRANT
EXHIBIT D
AMENDMENT TO
AMENDED AND RESTATED INVESTORS’
RIGHTS AGREEMENT
EXHIBIT E
SCHEDULE OF EXCEPTIONS
EXHIBIT F-1
ACCREDITED INVESTOR QUESTIONNAIRE
The following information
is furnished to Ritter Pharmaceuticals, Inc., a Delaware corporation (the “
Company
”), for it to determine whether
I am an “accredited investor” as that term is defined in Regulation D (“
Reg D
”) promulgated under
the Securities Act of 1933, as amended (the “
Securities Act
”), and comparable provisions of applicable state
securities laws. I understand that the Company will rely upon the following information in connection with a proposed private placement
of stock of the Company. I further understand I may be required to supply a balance sheet, prior years’ federal income tax
returns or other appropriate documentation to verify and substantiate my status as an accredited investor.
ALL INFORMATION CONTAINED
IN THIS ACCREDITED INVESTOR QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY. I understand that if I make a false statement,
it will constitute a violation of my representations and warranties contained in this Accredited Investor Questionnaire and may
also constitute a violation of law, for which the Company can make a claim for damages against me.
THIS QUESTIONNAIRE DOES
NOT CONSTITUTE AN OFFER OF SECURITIES. NO OFFER SHALL BE DEEMED MADE EXCEPT PURSUANT TO A FORM OF SECURITIES PURCHASE AGREEMENT
AUTHORIZED BY THE COMPANY.
I, the undersigned, hereby supply you with the
following information and representations:
1. Full
name:
__________________________________________________________________________________________________
2. Residence
address (not a P.O. Box address) and telephone number:
__________________________________________________________________________________________________
______________________________________________________________
(
)
-
_________________
3. Business
address and telephone number:
__________________________________________________________________________________________________
______________________________________________________________
(
)
-
_________________
4. State
in which the undersigned maintains principal residence:
__________________________________________________________________________________________________
5. State
in which the undersigned is registered to vote:
__________________________________________________________________________________________________
6.
If
an individual, I certify that I am an Accredited Investor because I qualify under at least one of the following categories (please
check the appropriate category):
|
|
a.___
|
$1,000,000 Net Worth Natural Person.
|
|
|
|
A natural person whose individual net worth, or joint net worth with that of my spouse, is at least
$1,000,000, excluding the value of my primary residence, but including as a liability indebtedness secured by such residence in
excess of the value of such residence.
|
b.
$200,000 Income Natural Person.
A natural person
who had “Individual Income” in excess of $200,000 in each of the two most recent years (without including any income
of his or her spouse) or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
c.
Director or executive officer of the Company.
7.
If
an entity, such entity is an Accredited Investor because it qualifies under at least one of the following categories (please check
the appropriate category):
|
|
|
a.
Private business development company as defined
in Section 202(a)(22) of the Investment Advisers Act of 1940;
|
|
|
|
b.
A corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific purpose of acquiring the Shares and has total assets in excess of $5,000,000;
|
|
|
|
c.
A trust, with total assets in excess of $5,000,000,
not formed for the purpose of the acquiring the Shares , whose purchase is directed by a sophisticated person as defined under
Rule 506(b)(b)(ii) of Reg D; or
|
|
|
|
d.
Any entity in which all of the owners are accredited
investors under Rule 501(a) of Reg D.
|
8.
I do not meet the criteria listed above in items 6 or 7.
9. Representations
and Warranties.
I, the undersigned, represent and warrant as follows:
(i) All
information that I have provided herein, including, without limitation, information concerning myself and my financial position
is correct and complete as of the date hereof, and if there should be any material change in such information prior to the consummation
of the proposed business combination between the Company, I will immediately provide the Company with such information.
(ii) I
am at least 21 years of age and, if signing on behalf of an entity, am authorized to sign this Accredited Investor Questionnaire
on its behalf.
By signing below, I hereby affirm and certify
the information I provided in this Accredited Investor Questionnaire.
__________________________________________________
Print Name
__________________________________________________
Signature
__________________________________________________
Date
__________________________________________________
EXHIBIT F-2
RULE 506 DISQUALIFICATION
EVENT QUESTIONNAIRE
Date
:
_________________________________
Name:
_________________________________
This Questionnaire is being furnished to you to
obtain information in connection with an offering (the “
Offering
”) of securities by Ritter Pharmaceuticals,
Inc. (the “
Issuer
”), under Rule 506 of the Securities Act of 1933 (the “
Securities Act
”).
As used in this Questionnaire, “you” also refers to any entity on whose behalf you are responding.
Important Note
: Please answer every
question.
If the Issuer has completed portions of the Questionnaire on your behalf, please confirm the accuracy of that
information.
If your answer to a question is “Yes,” please provide details in the explanation. Unless otherwise
stated, your answers should be given as of the date you sign the Questionnaire. Please note that certain questions are necessarily
broad in scope, so if you have doubts regarding whether something should be included in your response please err on the side of
over-inclusion. The Issuer may have additional follow-up questions for you in connection with the Offering.
Once you have completed the Questionnaire, please
sign it to indicate: (i) your consent for the Issuer to rely upon the information provided in this Questionnaire; (ii) your
acknowledgement that the Securities and Exchange Commission (the “
SEC
”) may require the Issuer to publicly disclose
the information provided in this Questionnaire, and your consent to such public disclosure; (iii) your agreement to promptly notify
the Issuer of any changes in information provided in the Questionnaire occurring after the date you sign the Questionnaire; and
(iv) your confirmation that the information contained in the Questionnaire is true and correct, to the best of your knowledge
and belief after a reasonable investigation, as of the date you sign the Questionnaire.
THE EXISTENCE AND CONTENTS OF THE QUESTIONNAIRE,
AS WELL AS YOUR ANSWERS AND ALL NOTES AND DRAFTS PREPARED BY YOU, ARE CONSIDERED EXTREMELY CONFIDENTIAL AND PROPRIETARY BY THE
ISSUER AND SHOULD BE TREATED ACCORDINGLY.
N
ame,
Address, Telephone Number and Email
|
Your full name:
|
|
|
|
|
|
|
|
Please provide all previous, assumed or fictitious names or aliases:
|
|
|
|
|
|
Business Address:
|
Home Address (if an individual):
|
|
|
|
|
|
|
|
|
|
|
Business Telephone:
( )
|
Home Telephone:
( )
|
|
E-Mail Address:
|
|
|
|
1.
|
Have you been convicted, within ten years before the sale of the securities (or five years, in the case of issuers, their predecessors
and affiliated issuers), of any felony or misdemeanor:
|
|
|
·
|
in connection with the purchase or sale of any security;
|
|
|
·
|
involving the making of any false filing with the SEC; or
|
|
|
·
|
arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment advisor
or paid solicitor of purchasers of securities?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
2.
|
Are you subject to any order, judgment or decree of any court of competent jurisdiction, entered within five years before
the sale of the securities, that, at the time of such sale, restrains or enjoins you from engaging or continuing to engage in any
conduct or practice:
|
|
|
·
|
in connection with the purchase or sale of any security;
|
|
|
·
|
involving the making of any false filing with the SEC; or
|
|
|
·
|
arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser
or paid solicitor of purchasers of securities?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
3.
|
Are you subject to a final order
1
of a state
securities commission (or an agency of officer of a state performing like functions); a state authority that supervises or examines
banks, savings associations, or credit unions; a state insurance commission (or an agency or officer of a state performing like
functions); an appropriate federal banking agency; the Commodity Futures Trading Commission; or the National Credit Union Administration
that:
|
|
|
·
|
at the time of the sale of the securities, bars you from:
|
|
|
·
|
association with an entity regulated by such commission, authority, agency or officer;
|
|
|
·
|
engaging in the business of securities, insurance or banking; or
|
|
|
·
|
engaging in savings association or credit union activities; or
|
|
|
·
|
constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive
conduct entered within ten years before the sale of the securities?
|
1
A “final order” is a written directive or declaratory statement issued by a federal or state agency described
in Rule 506(d)(1)(iii) under the Securities Act of 1933 under applicable statutory authority that provides for notice and an opportunity
for a hearing, which constitutes a final disposition or action by that federal or state agency.
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
4.
|
Are you subject to an order of the SEC entered pursuant to section 15(b) or 15B(c) of the Securities Exchange Act of 1934
(the “
Exchange Act
”) or section 203(e) or 203(f) of the Investment Advisers Act of 1940 (the “
Advisers
Act
”) that, at the time of the sale of the securities:
|
|
|
·
|
suspends or revokes your registration as a broker, dealer, municipal securities dealer or investment adviser;
|
|
|
·
|
places limitations on the activities, functions or operations of, or imposes civil money penalties on, such person; or
|
|
|
·
|
bars you from being associated with any entity or from participating in the offering of any penny stock?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
5.
|
Are you subject to any order of the SEC, entered within five years before the sale of the securities, that, at the time
of such sale, orders you to cease and desist from committing or causing a future violation of:
|
|
|
·
|
any scienter-based anti-fraud provision of the federal securities laws, including, but not limited to, Section 17(a)(1) of
the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(1) of the Advisers Act or any
other rule or regulation thereunder; or
|
|
|
·
|
Section 5 of the Securities Act.
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
6.
|
Have you been suspended or expelled from membership in, or suspended or barred from association with a member of, a securities
self-regulatory organization (e.g., a registered national securities exchange or a registered national or affiliated securities
association) for any act or omission to act constituting conduct inconsistent with just and equitable principles of trade?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
7.
|
Have you filed (as a registrant or issuer), or were you named as an underwriter in any registration statement or Regulation
A offering statement filed with the SEC that, within five years before the sale of the securities, was the subject of a refusal
order, stop order, or order suspending the Regulation A exemption, or is, at the time of the sale of the securities, the subject
of an investigation or proceeding to determine whether a stop order or suspension order should be issued?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
|
|
8.
|
Are you subject to a United States Postal Service false representation order entered within five years before the sale of
the securities, or are you, at the time of the sale of the securities, subject to a temporary restraining order or preliminary
injunction with respect to conduct alleged by the United States Postal Service to constitute a scheme or device for obtaining money
or property through the mail by means of false representations?
|
¨
Yes. If yes, please explain: ____________________________________________________________________
¨
No.
If any information furnished by me in this
Questionnaire becomes inaccurate, incomplete
or otherwise changes
, I will promptly advise the Issuer to that effect and
furnish any supplementary information that may be appropriate as a result of any developments, including the passage of time and
any new relationships that may develop in the future.
The foregoing answers are correctly and fully
stated to the best of my knowledge, information and belief after a reasonable investigation.
|
________________________________________
|
___________________________________________________
|
|
Date
|
Signature
|
|
|
|
|
|
Print Name:______________________________
____________
|
EXHIBIT G
OFFICER’S CERTIFICATE
EXHIBIT H
SECRETARY’S CERTIFICATE
Exhibit 21.1
SUBSIDIARIES OF RITTER PHARMACEUTICALS,
INC
.
As of March 20, 2015, the Company does not have any
subsidiaries.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
As independent registered public accountants,
we hereby consent to the use in this Registration Statement on Form S-1 and related Prospectus of our report dated March 13, 2015,
relating to the financial statements of Ritter Pharmaceuticals, Inc., (which report includes an explanatory paragraph relating
to the uncertainty of the Company’s ability to continue as a going concern) and to the reference to our Firm under the caption
“Experts” in this Registration Statement.
/s/ Mayer Hoffman McCann P.C.
Orange County, California
March 20, 2015
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